Donating to charity is an incredibly rewarding and pleasant feeling, you’ve helped to support someone less fortunate than yourself or helped drive a cause you believe in. Something many aren’t aware of, however, is that giving to charity can also help with your own finances. Giving to an eligible registered charity is not only a noble act, but it has tangible financial advantages in helping to reduce your UK tax bill. In this blog post, we will explain how donations for charity can help to lessen the overall amount on which you are liable for income tax or capital gains tax in the UK.

How Do Charity Donations Impact My Tax Bill?

It’s key that when giving to charity in the UK, you do so correctly. There are various taxation rules that come into play when making donations and only by meeting compliance can they offer maximum benefit to both the charity and your own tax bill. Below are several ways in which you can reduce your tax bill while still supporting the causes that matter:

• One way to reduce your tax liability is by allowing charities to claim Gift Aid on any money you donate. In the UK, if you donate to charities through Gift Aid, the government will provide an extra 25p for every pound This means that if you give £100, it is worth £125. If you wish to claim extra tax relief on this, you can contact HMRC letting them know of your donation which will in turn adjust your tax band to include the donation made as well as the gift aid that was claimed as a part of this.
• This strategy can also be incorporated to reduce inheritance Donations to charity made within a will aren’t taxable and work to reduce the overall value of the estate. With inheritance tax currently sitting at 40%, you can use a tax-exempt donation to reduce the overall amount of tax paid. For example: if your estate is worth £400,000, 40% inheritance tax would mean that £160,000 is due in tax, leaving a total of £240,000 up for inheritance. On the other hand, if you incorporate a donation of £50,000 – the value of the estate goes down to £350,000 for which the tax would be £140,000, leaving behind £210,000. While the money making up the inheritance is slightly lower (by £20,000) you’ve made a donation of £50,000 to the charity of your choice. Effectively, you’ve gained £30,000 for your charity where it would otherwise go to the government as tax.

Please note, we highly recommend that you speak to an expert as well as the charity in question before looking to leverage donations to reduce your tax bill.

Contact GoodtoGive for Gift Aid Support

Considering giving donations for charity? Through GoodtoGive, many charitable organisations have gained the tools required to streamline their finances and make the most of donations. To find out more about our charity accounting services and charities gift aid management software, get in touch with a member of our team at 020 7731 2041.