Types of donations
Generally when you donate to charity individually, as a sole trader, or as a partnership, the tax will either be passed onto you or to the charity. This depends on whether the donation is made:
via Gift Aid
through a Payroll Giving scheme (ie straight from your wages or pension)
land, property or shares
in your will
Remember to keep a record of your donations if you want to take the donations of your taxable income.
If you donate to a charity or a community amateur sports club (CASCs) through Gift Aid, they can claim an extra 25p for every £1 donated, if they have registered with HMRC to be part of the Gift Aid scheme. It won’t cost you, as the donor, any extra. Charities are able to claim Gift Aid on most donations. Some payments that do not qualify for Gift Aid are listed here.
In order to claim this relief you must make a Gift Aid declaration for the charity to claim. In this declaration you can include all donations from the last 4 years.
For higher rate taxpayers, you can claim the difference between the rate you normally pay and the basic rate on your donation. You do this either on your Self Assessment tax return or by asking HMRC to amend your tax code or informing HMRC directly.
For example, if you are a higher rate taxpayer and donate £100 to charity, the charity can claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25 (20% of £125).
Payroll Giving schemes
Some employers provide the option of donating to charities directly from employees’ wages. Donations can also be made directly from pensions. In order to do this your employer must have a Payroll Giving scheme. The donation is made before tax is deducted from your income. You’ll still pay National Insurance contributions on the amount of your donation. But you won’t pay any income tax on the amount you donate.
The amount of relief you get depends on the rate of tax you pay. To donate £1, you pay:
80p if you’re a basic rate taxpayer
60p f you’re a higher rate taxpayer
55p if you’re an additional rate taxpayer
Donating to charity through land, property, shares
You don’t have to pay tax on land, property or shares that you donate to charity. It is possible to get relief on both income tax and capital gains tax.
You should keep for your records:
legal documents showing the sale or transfer to charity
any documents from a charity asking you to sell land or shares on its behalf
It is recommended that you keep these records for at least 22 months from the end of the tax year they were donated in.
Income tax relief
You can pay less income tax by deducting the value of your donation from your overall taxable income. You can do this by adding the amount you’re claiming in the ‘Charitable giving' section of the Self Assessment tax return form.
If you don’t normally complete a Self Assessment tax return, then you can contact HMRC instead. You will either get a refund, or your tax code will be changed so you pay less income tax for that year.
Capital gains tax relief
There is no capital gains tax due on land, property or shares that are given to charity. But, you may have to pay if you sell these assets for more than they cost you, but less than their market value. In this case, you will need to work out the gain using the amount the charity actually pays you for the asset, rather than the value of the asset. For more information about capital gains tax, you can read the government’s guidance here.
Donating to charity in your will
If you decide to donate to charity in your Will then the value of these items will either be taken off the value of your estate before inheritance tax is calculated or actually reduce your inheritance tax rate if 10% or more of the value of your assets is left to charity.
To make sure your gifts to charity are legally included in your will you can read our legal guide, Making your will.
Donating to charity in your will is worth considering if you intend to support a particular charity even after your death. The rules on exactly what you can give away to charity to earn the lower tax rate can be quite complex.
We recommend that you Ask a lawyer who specialises in estate planning.
Tax reliefs for limited companies donating to charity
There are different tax reliefs available for limited companies who donate to charity. A limited company will pay less corporation tax when it donates the following to charity:
equipment or items that the company sells
land, property or shares
employees (for example those on secondment)
You can claim corporation tax relief by deducting the value of the donation from the total business profits before tax is paid.
Sponsoring a charity
As a limited company, you could also sponsor a charity. Sponsorship is beneficial for both the charity and the company, as the company gets something related to the business in return.The company can receive extra publicity and the charity receives much needed funding. You can deduct sponsorship payments from your business profits before corporation tax is paid by treating them as a business expense. Only certain types of sponsorship payments qualify as a charity payment. To find out whether your payment is a donation or sponsorship, you can call the charities helpline.