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The UK Donor’s Guide to Tax-Efficient Charity Giving
Giving to charity is a rewarding way to make a difference, support the causes that matter to you, and give back to your community. Even better? With the right strategies, you can maximise the tax benefits and stretch your support even further – benefiting both the causes you care about and your own financial well-being.
At Lester Brunt, we’ve been helping people around Dorset, Hampshire and beyond get the most out of their charitable giving for over 25 years. In this guide, we’ll walk you through how to structure your donations so that both the charity and you, as a UK donor, get the maximum benefit.
1. Sign Up for Gift Aid
You’ve probably been asked to sign up for Gift Aid when donating before, but it’s not always clear what that means.
Gift Aid is a UK tax incentive introduced in 1990. How it works is simple: when you donate and tick the Gift Aid box, the charity can claim an extra 25p for every £1 you give, making your donation 25% more valuable.
You’re eligible for Gift Aid if you’re a UK taxpayer paying the basic rate of income tax, and it applies to most types of donations, including:
- Cash donations
- Cheques
- Standing orders
- Direct debits
- Gift vouchers
- Donations of goods or services
If you’re a higher-rate (40%) or additional-rate (45%) taxpayer, you can claim back the difference between your tax rate and the basic rate on your donation. For example, if you’re a higher-rate taxpayer, a £100 donation becomes £125 for the charity through Gift Aid, and you can reclaim £25. For additional-rate taxpayers, you can reclaim £31.25.
To make the most of this benefit, you’ll need to include your donation in your Self-Assessment tax return, making sure both you and the charity get the full value of your contribution.
Gift Aid is an easy way to increase the value of your donation at no extra cost to you, so it’s nearly always worth using, no matter how much you give.
2. Donate Assets or Shares
Donating cash isn’t the only way to support your favourite charity. You can also give shares, property, or other assets directly – and these options come with the added bonus of significant tax benefits.
When you donate shares or certain assets to a charity, you can claim full income tax relief on their market value, and you won’t have to pay capital gains tax (CGT) on any increase in the asset’s value since you acquired it. This makes donating assets a particularly tax-efficient option, especially if they’ve grown in value.
An example: if you have shares worth £10,000 that have appreciated from £5,000, donating them directly to a charity could save you both CGT and income tax.
3. Add Charitable Legacies in Your Will
Leaving a gift to charity in your will is another tax-efficient way to give. Gifts to registered charities aren’t subject to inheritance tax (IHT), which is usually charged at 40% on estates over £325,000 (or £500,000 if you qualify for the residence nil-rate band).
On top of this, if you leave at least 10% of your estate to charity, the IHT on the rest of your estate drops from 40% to 36%. This can make a big difference (especially for larger estates), helping you leave more to both your loved ones and the causes that matter to you.
4. Setting Up a Charitable Trust or Foundation
If you’re thinking about making larger, ongoing charitable contributions rather than one-time donations, you might want to consider setting up a charitable trust or foundation. This can give you a more structured way to give and much more control over where your money goes.
With a charitable trust, you can put assets into a fund that makes donations over time. You’ll get tax relief right away, while still having control over how and when the money is given to the causes you care about.
You don’t need to be a millionaire to set up a charitable trust, but it’s usually more practical if you have significant assets to manage.
A charitable foundation is a way to leave a lasting legacy, allowing your family or trustees to continue supporting the causes close to your heart long after you’re gone. While setting these up takes some planning and expert advice, the long-term benefits for both you and the causes you support can be huge.
5. Payroll Giving
Payroll giving is a tax-efficient way to donate directly from your salary. Donations are taken before tax, so you get instant tax relief. For example, if you donate £100 through payroll giving, it only costs a basic-rate taxpayer £80 (or £60 if you’re a higher-rate taxpayer), but the charity still receives the full £100.
It lets you give regularly without filling out extra paperwork, making it easy to provide ongoing support to your favourite causes.
6. Make Use of Donor-Advised Funds (DAFs)
Donor-Advised Funds (DAFs) work like charitable savings accounts and have become a popular, flexible way to manage your giving. With a DAF, you can:
- Donate assets like cash, stocks, or property to the fund
- Claim a tax deduction in the year you make the contribution
- Recommend grants to eligible charities whenever you’re ready
This option is great if you want more time to choose which causes to support or if you prefer to build a larger fund for more significant donations down the road. DAFs also make things easier by handling the paperwork, tracking donations, and making sure the money goes to eligible charities.
7. Review and Adjust Your Giving Regularly
While the options above are all great ways to make the most of your donations, don’t forget to regularly review your giving to make sure it still fits with your financial situation and goals.
As things in your life change – like a salary increase, new family responsibilities, or big life events – tweaking your approach can help you keep the tax benefits while making sure your donations reflect what’s important to you. For example, if you get a bonus, you might want to make a larger one-off donation in a particularly good year. Or, if you’re getting close to retirement, thinking about how your giving fits into your long-term plans can help you keep supporting your favourite causes well into the future.
Maximise Your Impact with Financial Advice from Lester Brunt
At Lester Brunt, we specialise in helping individuals and families make the most of their charitable giving, making sure it has the greatest impact while being tax-efficient. Whether you’re considering a large donation, a charitable legacy, or simply want to give in a more structured way, our financial and tax planning services can help you make the most of your philanthropy.
Book a confidential consultation online or call us on 01202 695 801 today to discuss how we can support your charitable goals.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
Written By Bodie Dove
Chartered Financial Adviser
Lester Brunt Wealth Management
Lester Brunt Wealth Management is a trading name of Lester Brunt Wealth Management Ltd