The tax benefits of charitable giving for high-net-worth individuals

Last updated: 29 August 2024

Donating to charity can give you a sense of fulfilment, knowing that your money is making a difference to those in need. But the benefits of charitable giving extend beyond those who receive your generosity - there is also tax relief on charitable donations that you can take advantage of.

So, are charity donations tax deductible? Here, we’ll explore how tax relief on charity donations works in the UK and how this knowledge can inform your legacy planning.

Benefits of charitable giving 

Donating money to charity can offer both you and the recipient several benefits. The more obvious and emotive benefit of charitable giving is that you’re helping to make a difference. When you donate to a cause you care about, you know that your generosity is making an impact on others' lives.

The government incentivises donating to charities by offering tax relief on charitable donations. There are a few types of tax relief which can benefit both the charity you’re supporting and your personal finances, including:

1. Gift Aid

Charities and Community Amateur Sports Clubs can receive an additional 25p for every £1 you donate when you use Gift Aid. As a higher or additional rate taxpayer, Gift Aid also allows you to claim further income tax relief on your charitable donations through your tax return. The charity can reclaim the basic rate of tax (20%) on a donation, with the other 20% or 25% available to be reclaimed by you, which can reduce your income tax bill. Let’s say you donated £100 to charity - they claim Gift Aid to make the donation £125. If you pay 40% tax, you can claim back £25.

2. Inheritance Tax relief

Your beneficiaries may have to pay Inheritance Tax if your estate is valued at over £325,000. Charitable donations in your will can reduce the level of tax that needs to be paid. Your charity donation will be taken off your estate before Inheritance Tax is calculated. And if you donate at least 10% of your net estate, the Inheritance Tax on the remainder of your estate is reduced too. 

3. Land and property

If you choose to donate land, property, or shares to charity, then you don’t need to pay tax on them. You can get tax relief on both Income Tax and Capital Gains Tax through these donations. Make sure to keep records of your donations to show you’ve sold or gifted the land or property, and that the charity has accepted it.   

4. Payroll Giving

If your employer, company, or personal pension provider has a Payroll Giving scheme, you can make charitable contributions from your PAYE income before tax (but after National Insurance contributions). You’ll gain tax relief based on your personal Income Tax rate. If you’re a higher rate taxpayer, you’ll pay 60p for every £1 you donate, and 55p if you’re an additional rate taxpayer.

Donation methods

Looking to become more tax efficient through charitable donations? To donate through the Gift Aid scheme, you’ll need to sign a Gift Aid declaration when you donate, which confirms that the tax reclaimed by the charity won’t exceed your Income Tax and Capital Gains Tax liability in the year. As a higher rate or additional rate taxpayer, you can claim Income Tax relief by filling out a self-assessment tax return, or through your PAYE tax code.

Legacy planning

While deciding what happens to your assets and wealth when you’re gone can be a difficult and emotional conversation, it can also help alleviate any worries you may have about your family’s financial future.

Legacy planning is the process of deciding how you’d like your assets distributed to your loved ones after your death - often in the most tax-efficient way. As mentioned, tax relief on charitable donations is one way to minimise your tax liability. If you’re looking to donate to a charity following your death, you can leave your charitable donation in your will.

Planning your legacy early can give you the peace of mind that when the time comes, your affairs will be taken care of.

Learn more: Family wealth management

Contact an expert

Looking for how best to prepare your legacy? Speaking with a Financial Adviser can guide you in the right direction. They can explain how charitable donations tax works and the ins and outs of Inheritance Tax. So you have less to worry about. 

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