The tax benefits of giving to charity

Find out how to help your favourite cause and save money

Sarah Pennells – Virgin Money Living Mentor

by Sarah Pennells | Independent Money Mentor

Founder of SavvyWoman and award-winning journalist

Giving to charity isn’t just a way of helping your favourite cause, it could save you some tax as well. And, even if you don’t save tax, the charity could benefit from a tax top-up that doesn’t cost you a penny.

Giving extra to charity

The government scheme – called Gift Aid – works by giving the charity you’ve donated to a tax top-up. This top-up is worth 25p in the pound, which means that every £10 you give becomes £12.50 once the charity’s collected Gift Aid. But this doesn’t happen automatically.

When you make a donation to charity, whether it’s a one-off or a regular payment, the charity will ask you if you want it to collect Gift Aid. You have to agree to this for each charity and for each donation (if it’s a one-off), before it can claim the Gift Aid. 

Gift Aid is available on cash donations and on items you donate at charity shops (such as clothes, books and bric-a-brac).

Do you qualify for Gift Aid?

You have to be a taxpayer to use Gift Aid – otherwise the charity can’t claim the tax boost on your behalf. You also have to pay at least as much tax as the charity is claiming via Gift Aid and you must give your home address to the charity so Gift Aid can be added to your donation. 

If you’re a higher rate taxpayer, you can save tax by claiming the difference between basic and higher rate tax on your donations when you fill in your self-assessment form. 

Giving to charity through your workplace

Gift Aid isn’t the only charity tax break. Some companies run ‘give as you earn’ or other payroll giving schemes, which means you can give to charity every month and the money’s taken off your salary.  

You can save tax because your donation is taken off your salary before it’s taxed. It’s a win-win, because there’s less tax for you to pay, and a regular income for your favourite charity!

Leaving money in your will

You can also save tax if you leave money to charity in your will. At the moment, the rules say that if you have more than £325,000 worth of money or property when you die, anything above this is taxed at 40%. This is the inheritance tax rate.

You can also leave money to charity and you won’t have to pay inheritance tax on your donation. The amount you donate is taken off the value of the money and property you leave behind before inheritance tax is worked out. If you donate at least 10% of the value of what you leave behind (minus any debts and funeral expenses) to charity, there’s a different tax break you can use. In this case, the overall inheritance tax rate reduces from 40 to 36 percent. 

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.