Six tips to save on tax when you give money to charity

Donating to charity can change lives for the better. But as the cost of living continues to rise, many charities fear donors will curb their generosity.

Donations fell from £11.3 billion to £10.7 billion last year and could fall even further this year. But there are ways to donate that are tax efficient and can benefit the giver financially. Here are six top tax benefits for smart donations.

1) Reclaim gift help

Charitable donations by individuals are tax-free. Make sure to check the box to claim Gift Aid when you give. This allows the charity to reclaim the income tax you have already paid on your gift.

So if you donate £100 to charity, Gift Aid can recover it at the base rate of 20 per cent income tax, increasing your donation to £125 at no extra cost to you.

But if you are a taxpayer with a higher or additional rate, the tax advantage is even more attractive. Since the charity can only reclaim tax at the base rate, you can reclaim the remainder. So if you pay 40 percent income tax, the charity will reclaim 20 percent and you can reclaim another 20 percent.

At a donation of £100, this means that the charity can claim £25 and the giver can also claim £25. You can reclaim the tax by completing your own tax return, or by contacting the tax authorities directly and requesting a refund.

The benefit is even more generous for supplementary rate taxpayers who pay 45 percent tax – and in Scotland where higher and supplementary tax rates are higher, 41 percent and 46 percent respectively.

2) Get money back when you donate goods

Many high street charity shops, such as the British Heart Foundation and Cancer Research UK, allow you to use Gift Aid for any donations you give, such as clothing, books and trinkets. This increases the value of your donation and lowers your tax bill if you are a higher or additional taxpayer. Just check when you donate to see if you can register for Gift Aid. The charity must then let you know when the items you donated sold and how much they were purchased for.

3) Money Back on National Trust and Theater Memberships

Remember that Gift Aid applies to all registered charities. This means that if you have a National Trust membership, or are a member of an arts organization such as a theater or gallery that is registered as a charity, you should be able to claim Gift Aid.

4) Get a child benefit increase

The High Income Child Benefit Charge gradually withdraws a family’s entitlement to child benefits when a parent earns more than £50,000.

But giving to charity can help offset these losses. That’s because when you give to charity with Gift Aid, your taxable income is reduced by the amount you give.

If your income is just above the £50,000 threshold, a charitable donation can help bring it below the threshold so that you are eligible for child support again.

5) Big wins for high earners

Workers who earn between £100,000 and £125,000 effectively pay a marginal rate of 60 percent income tax. That’s because not only do they pay 40 percent income tax, but their tax-free allowance is also included at £1 for every £2 they earn over £100,000.

By donating to charities, this burden can be somewhat reduced, as the taxable income is reduced by the amount donated.

Alice Pearson, a partner at accountant Mercer & Hole, says: ‘Where a higher income tax credit for charities is available, it is important to remember that it must be claimed – either by completing your own tax return or, if you are employed , by asking the tax authorities to amend your tax code.’

6) Reduce your inheritance tax assessment

Charitable donations in wills are free of inheritance tax. They raise £3.4 billion each year for UK charities and account for 16 per cent of all revenue raised.

You may also be able to donate your pension to a good cause. If you have a defined contribution pension through your employer, you can indicate with a wish form whether you want a charity to inherit your pension in the event of your death. Of course you should first discuss this with your loved ones.

You can also reduce the inheritance tax rate on your estate from 40 to 36 percent if you leave at least ten percent of your assets to charity.