Donating to charity not only supports worthy causes but also offers tax benefits under UK law. Whether you're contributing cash, assets, or even making provisions in your will, there are mechanisms in place to claim tax relief on these charitable acts.
Claiming Tax Relief on Cash Donations
When you donate money to charity, the Gift Aid scheme enhances the value of your donation by allowing charities to reclaim the basic rate of tax (20%) on your contribution. For higher-rate taxpayers (40% tax bracket), there's an opportunity to claim the difference between the higher rate and the basic rate on donations. This can be accomplished through your Self Assessment tax return or by requesting an adjustment in your tax code by HMRC.
Donating Land, Property, and Shares
Offering land, property, or shares to charities not only provides significant support to these organizations but also entitles you to claim tax relief on both Income Tax and Capital Gains Tax (CGT):
- Income Tax Relief: Claimable for the value of your donated assets, reducing your taxable income for the year.
- CGT Relief: Normally, gifting assets incurs CGT, but donations to charity are exempt, providing a double tax benefit.
These reliefs can be claimed through your Self Assessment tax return or by directly contacting HMRC, which may result in a tax rebate or an adjustment to your tax code.
Charitable Donations in Wills
Donating through your will has distinct advantages:
- Reduced Estate Value: The value of donations is deducted from your estate before Inheritance Tax (IHT) is calculated, potentially lowering the IHT liability for your beneficiaries.
- Reduced IHT Rate: Leaving at least 10% of your estate's net value to charity reduces the IHT rate on the rest of your estate from 40% to 36%, promoting charitable giving even in death.
Conclusion
Charitable donations not only further the efforts of numerous organizations working for the betterment of society but also offer tangible tax benefits for the donor. Understanding these benefits and how to claim them can make your charitable giving even more impactful. Whether through direct monetary gifts, donations of assets, or provisions in your will, the UK tax system supports and encourages generosity towards charitable causes.
