Charitable giving plays an important role in the UK, both for helping good causes and for supporting the wider community. Many people do not realise that giving to charity can also reduce the amount of tax they pay.
The UK tax system gives several forms of tax relief when money, assets, or support is given to registered charities. This guide explains how tax relief works, who can claim it, and how to make sure donations are handled in the most tax efficient way.
Whether you are an individual donor, a business owner, or someone planning future gifts in your will, understanding tax relief rules can help your donation go further. The rules are set by HMRC, and this guide breaks them down into simple steps so you can make informed choices.
Are Charitable Donations Tax Deductible?
In many cases, yes, charitable donations can reduce the tax you pay. Tax relief is available for most donations made to UK registered charities and to certain community amateur sports clubs. The type of tax relief you get depends on how you donate and whether you are an individual or a company.
You can get tax relief on donations such as:
- Cash gifts
- Payroll giving
- Donations with Gift Aid
- Gifts of property, land, or shares
- Company donations treated as business expenses
- Gifts made in wills
The important point is that the charity must be officially recognised for tax purposes. HMRC offers a list of recognised charities on the GOV.UK website.
How You Can Benefit from Tax Relief on Charitable Giving
When you donate in a tax efficient way, you can:
- Reduce the amount of income tax you pay
- Cut your corporation tax bill if you run a company
- Support charities at a lower cost to you
- Increase the value of your donation without paying extra
Different donation methods work better for different situations, and choosing the right one can make a big difference.
Tax Relief for Individuals
Individual donors in the UK have several options to claim tax relief on charitable donations. The most common methods are Gift Aid, Self Assessment, and payroll giving. Each works in a different way and offers different tax advantages.
What is Gift Aid? And How It Works?
Gift Aid is the most widely used system for charity donations in the UK. When you donate through Gift Aid, the charity can claim an extra 25p for every £1 you donate. This extra money comes from the tax you have already paid on your income.
To use Gift Aid, you must:
- Be a UK taxpayer
- Have paid at least as much tax as the charity will claim
- Complete a Gift Aid declaration
The declaration is simple, and can often be done online, by ticking a box, or by filling out a short form.
Gift Aid Turns £1 into £1.25
Gift Aid increases the value of your donation without costing you anything extra. For example:
- You donate £10
- The charity claims £2.50 from HMRC
- The charity receives £12.50
Higher rate and additional rate taxpayers can claim extra relief through Self Assessment. This reduces their taxable income and gives them a personal tax saving.
Self-Assessment and Charitable Donations
If you pay tax through Self Assessment, you can claim extra relief on Gift Aid donations. This is only available if you pay higher rate or additional rate tax.
Here is how it works:
- The charity claims 25 percent from HMRC
- You claim the difference between the basic rate and your tax band
This means you get some tax back, making your donation more cost effective.
Payroll Giving (Give-As-You-Earn)
Payroll giving lets you donate straight from your salary before income tax is taken. You must donate through an employer scheme that is registered with HMRC.
Payroll giving has some clear benefits:
- Donations are taken before tax
- You immediately get tax relief
- Charities receive your gift in full
- No need to claim anything through Self Assessment
Help Employees Save Tax Through Payroll Giving
With payroll giving, employees do not pay income tax on the amount they donate. This means the cost to the employee is lower, while the charity receives the full amount.
For example:
- If you donate £10 a month, it costs you only £8 if you pay basic rate tax
Higher rate and additional rate taxpayers save even more.
Give Even More, Pay Even Less
Because donations are taken from pre tax income, payroll giving can be one of the most cost effective ways to support a charity. It also gives charities a steady and reliable source of income.
Gift Aid vs Payroll Giving, Which Is Better?
Both systems offer tax relief, but they work in different ways. The best option depends on how you prefer to donate.
Gift Aid is better if:
- You donate occasionally
- You pay higher rate tax and want to claim extra relief
- You want charities to receive the extra 25 percent
Payroll giving is better if:
- You want regular monthly donations
- You want tax relief instantly
- You do not want to complete any forms
- You pay higher rate tax and prefer automatic relief
Can You Reduce Income Tax Through Charitable Donations?
Yes, you can reduce your income tax bill if you donate in a tax efficient way. Gift Aid and payroll giving are the main methods. Higher rate and additional rate taxpayers benefit the most, because they can claim extra relief.
Tax Relief for Donations from Non-Domiciled Individuals
If you are a UK resident but not domiciled, you may be using the remittance basis for tax. In this case, you can only get tax relief on donations if:
- The donation is made from UK income, or
- You remit enough foreign income to cover the donation
This area can be complex, and many people seek professional guidance.
Long-Term Charitable Giving
Some individuals choose to make long term commitments to charity. This can include leaving gifts in wills, setting up charitable trusts, or making regular donations. Long term giving often provides more tax benefits, especially when inheritance tax is involved.
Charitable Giving Through Wills and Estates
Gifts left to charity in a will are free from inheritance tax. This can also reduce the overall tax bill on your estate, which benefits your other beneficiaries.
Giving to Charity in Your Will
You can leave:
- A fixed amount of money
- A percentage of your estate
- Specific items or assets
These gifts reduce the value of your taxable estate and pass to the charity tax free.
Reducing Inheritance Tax Through Charitable Donations
If you leave at least 10 percent of your estate to charity, the inheritance tax rate on the rest of your estate drops from 40 percent to 36 percent. This means your family may receive more, while charities also benefit.
Full details about inheritance tax rules can be found on the official GOV.UK website.
Tax Relief for Companies Making Charitable Donations
Companies can claim tax relief on donations to charity by deducting the value of the donation from their profits before tax. This reduces their corporation tax bill. Relief is available for cash donations, gifts of equipment, and certain expenses.
Deducting Donations from Company Profits
When a company donates to a registered charity, it can deduct the amount from its total profits. This lowers the corporation tax due. The donation must be genuine and not in return for a significant benefit.
Deducting Donations as a Business Expense
Some donations can be treated as business expenses if they support company activities. For example:
- Sponsoring a charity event
- Providing products or equipment
- Offering services free of charge
These costs must be related to the business and must not be excessive.
Claiming Donations as Capital Allowances
If a company donates equipment or assets it uses in the business, it may claim capital allowances. This means it can deduct part of the value from taxable profits.
Examples include:
- Computers
- Tools
- Office equipment
Capital allowances can reduce the corporation tax bill.
Can Limited Companies Get Tax Relief on Charitable Donations?
Yes, limited companies can claim tax relief on most qualifying donations. The key conditions are:
- The donation must be made to a registered charity
- The company must not receive a significant benefit in return
- The donation must be recorded correctly in company accounts
Charities must also provide proper receipts.
Other Types of Donations That Qualify for Tax Relief
Tax relief is not limited to cash. You can also claim relief when donating property, land, or shares. Companies can also get relief for giving staff time or resources.
Donating Shares, Land, or Property
When you donate qualifying investments or land to a charity, you may get relief from capital gains tax and income tax. The rules apply to:
- Shares listed on a recognised stock exchange
- Units in authorised unit trusts
- Land or property
These donations can be more tax efficient than selling the asset and donating cash.
Sponsorship
Sponsorship payments can qualify as business expenses if the charity provides some form of publicity or recognition. For example, a company logo on an event banner or charity website may count as advertising.
Seconding Employees to Charities
Some businesses send employees to work at a charity for a set time. The company continues to pay the employee, and the cost can count as a business expense. This gives the charity valuable support while offering tax benefits to the employer.
How to Claim Tax Relief on Charitable Donations
The process for claiming tax relief depends on whether you are an individual or a company.
Claiming as an Individual
Individuals can claim tax relief through:
- Gift Aid
- Self Assessment
- Payroll giving
Steps include:
- Keep records of all donations
- Complete the Gift Aid declaration
- Include donations on your Self Assessment form if needed
HMRC provides guidance on how to enter donations in the tax return.
Claiming as a Limited Company
Companies claim relief by:
- Recording donations in company accounts
- Deducting donations from profits
- Applying the correct corporation tax calculation
Companies do not need to use Self Assessment for donations. Relief is claimed through the standard corporation tax return.
Important Things to Know When Claiming Tax Relief
There are a few important rules to be aware of when giving to charity.
Cash Donations and Monetary Gifts
Cash, bank transfers, and card payments qualify for relief. However, charities must issue a receipt if the donation is large or if the donor needs proof for tax purposes.
VAT on Items Donated or Sold
Donated goods sold by charities are usually exempt from VAT. This helps charities keep more of the money they raise.
Record-Keeping Requirements
Good records are important. You should keep:
- Donation receipts
- Gift Aid declarations
- Payroll giving statements
- Evidence of asset transfers
Companies must also keep clear accounting records for HMRC.
Get Expert Financial Advice On Tax Relief
If you need any help understanding tax relief on charitable donations or want advice tailored to your situation, our professional accountants in London are ready to assist you. We can guide you through Gift Aid, company donations, inheritance tax planning, and the best way to maximise tax relief on every contribution you make.
