Individuals can make tax free donations to charitable organisations and to community amateur sports clubs (CASCs).
The tax portion may go to the charity itself or to the donor. The way tax relief works would depend on how the donation take place, such as by:
- A donation made through the Gift Aid scheme
- Donating an amount direct from wages or from a pension through a Payroll Giving scheme
- Donating land, property, or shares
- Leaving gifts to charity in a will (e.g. a fixed amount or a particular item)
Note: The same rules also relate to sole traders and to partnerships. But, a different set of rules apply to tax when your limited company gives to charity.
You cannot use a Payroll Giving scheme to make a donation to a community amateur sports club (CASC). It must be registered as a CASC with HM Revenue and Customs (HMRC) to get tax relief when you donate to a sports club.
Note: You can check an updated A to Z list of community amateur sports clubs (CASCs) registered with HMRC.
As a general rule, you would be able to take the donations off your total taxable income. But, you would need to keep accurate records of any donations that you make to charity (details below).
Donating through Gift Aid
Charities and community amateur sports clubs can claim an extra 25 pence for every £1 donated through Gift Aid. The donor does not need to pay anything extra through this kind of tax incentive.
As a rule, charities will be able to claim Gift Aid on most types of donations. But, there are some special rules for claiming Gift Aid and some payments do not qualify at all.
Making a Gift Aid Declaration
The charity can only claim the tax if you make a Gift Aid declaration. It can include the previous four (4) years of donations. The charitable organisation will be able to provide you with a form if you do not have one.
Note: Donors need to give a declaration to each charity they are donating to through the Gift Aid scheme. They would also need to inform the charity of any tax years where they did not pay enough tax to qualify.
Tax Qualification for Gift Aid
Donations would qualify providing they are not more than four (4) times the amount paid in tax in that particular tax year (6th of April to the following 5th of April).
In most cases, the tax will have been paid on income or on capital gains. But, you must inform the charities that you are supporting if you stop paying enough tax.
Higher Rate Taxpayers
Paying above the basic tax rate, or living in Scotland, means you can claim the difference between the rate paid and the basic rate on the donation. You can do this through a Self Assessment tax return or by asking HMRC to amend the tax code.
Suppose you make a donation of £100 to your favourite charity. They may claim Gift Aid to increase the donation to £125. Paying 40% tax means you would personally claim back £25.00 (£125 x 20%).
Donors would not pay the difference between the higher and the basic rate of tax on the donation when using a Payroll Giving scheme.
Claiming Tax Relief Sooner
As a rule, you would only report things from the previous tax year in a Self Assessment tax return. But, the process differs for Gift Aid. You can claim tax relief on charity donations made during the current tax year (up to the date you send a return) if (either):
- You want to get the tax relief when you donate to a charity ‘sooner’.
- You will not pay higher rate tax during the current year, but you paid it in the previous year.
However, you would not be able to use this process if:
- You miss the Self Assessment deadlines (i.e. 31st of January when filing online).
- Your donations fail to qualify for Gift Aid (combined donations from both tax years must be lower than four (4) times the tax paid in the previous tax year).
What happens if you do not need to send a tax return? In this case, you should contact HM Revenue and Customs and ask for ‘form P810’. You would need to submit form P180 by 31st of January after the end of the previous tax year.
Donate Straight from Wages or Pension
Some employers, companies, and personal pension providers run a Payroll Giving scheme. If so, you should be able to donate straight from your pension or wages. It would mean the donation takes place before they deduct tax from the income. Your employer or pension provider can confirm if they run a Payroll Giving scheme.
The amount of tax relief you can get would depend on the rates of taxation you pay. Thus, to make a donation of £1, you would actually pay:
- 80 pence (as a basic rate taxpayer)
- 60 pence (as a higher rate taxpayer)
- 55 pence (as an additional rate taxpayer)
The rates of Income Tax in Scotland affect the amount of tax relief you can get on charity donations if you live in Scotland. Thus, to make a donation of £1, you would actually pay:
- 81 pence (as a starter rate taxpayer)
- 80 pence (as a basic rate taxpayer)
- 79 pence (as an intermediate rate taxpayer)
- 59 pence (as a higher rate taxpayer)
- 54 pence (as a top rate taxpayer)
Note: The rules of Payroll Giving schemes do not allow donations to a community amateur sports clubs (CASCs) via this method.
Donating Land, Property, or Shares
No tax is liable on land, property, or on shares donated to charity. The same applies if you sell them for less than their real market value. You can get tax relief on Income Tax and on Capital Gains Tax.
You would need to keep proper records of the donation (see below). The records must show what gift or sale you made (and the charity accepted it).
Note: You would not be able to get Income Tax relief on donations made to community amateur sports clubs.
Claiming Income Tax Relief
Less Income Tax would be due after deducting the value of the donation from total taxable income. This process would apply to the tax year (6th of April to 5th of April) that you made the gift or the sale to charity.
Add the amount that you are claiming in the section marked ‘Charitable giving’ if you complete a Self Assessment tax return. This process will reduce the original amount owing in your Self Assessment bill.
You would need to write to HM Revenue and Customs if you do not complete a tax return. Give HMRC the details of the gift or the sale along with your tax relief amount. HMRC will either give you a refund or they will change your tax code so you would pay less Income Tax for that particular tax year.
Note: HMRC produce a guide to help you work out the value of your donation and the amount of Income Tax or Corporation Tax relief you can claim if you give away or sell land, property, or shares to a charity.
Capital Gains Tax Relief
As a rule, no Capital Gains Tax is due on land, property, or shares that you give to charity. But, selling them for more than they cost you (but less than their market value) means you may have to pay it.
Note: Use the amount a charity pays you, rather than the asset’s value, when you are working out the gain.
Selling Land, Property, or Shares for a Charity
It is not uncommon for a charity to ask a donor to sell the gift on their behalf when offering them a gift of land, property, or shares. Donors may do it and still claim tax relief for the donation.
But, the donor must keep records of the gift as well as the request by the charity. If not, you may need to pay Capital Gains Tax on the donation.
Leaving Gifts to Charity in a Will
A Last Will and Testament states what will happen to someone’s money, property, and possessions after death. If you leave a donation in your will, it either:
- Gets taken off the value of the estate before calculating Inheritance Tax.
- Reduces Inheritance Tax rates if the donation is at least 10% of the estate to charity.
In a will, you can choose to donate a fixed amount, an item, or the amount left after other gifts have been shared to the beneficiaries.
Writing the Will
You should include the full name of the charity when writing or updating a will to ensure it is legal. You can either check with the actual organisation to confirm their name or you can search the charity register.
Keeping Records of Donations
You will need to keep proper records of donations to charities if you want to claim back tax on the benefactions.
Keep Records of Gift Aid Donations If:
- You claim tax credits
- You get a higher Personal Allowance (due to your age)
- You are paying higher rate taxation
- You receive the Married Couple’s Allowance
Claiming tax back through Self Assessment (or by asking HMRC to amend tax codes) means you need to keep records that show the amount, the date, and which particular charities you made a donation to.
Keeping Records of Buildings, Land, and Shares:
- Keep legal documents that show the sale or the transfer to a charity.
- Keep any relevant documents from a charity that ask you to sell land or shares on their behalf.
Note: As a rule, you must keep the records for a minimum of 22 months from the end of the tax year that they apply to.