Donations by individuals to Charities (and Community Amateur Sports Clubs) are tax free. How this works depends on whether you donate: in your will; through Gift Aid; straight from your wages or pension through a Payroll Giving scheme or if you gift land, property, or shares.
Leaving gifts to charity in your will
There is no Inheritance Tax to pay on gifts donated to charity in your will. You can donate a fixed amount of money; a particular item; or whatever’s left after other gifts have been given out. When you make a gift to charity in your will your donation will either be taken off the value of your estate before Inheritance Tax is calculated or if you leave 10% or more of your estate to charity it reduces your Inheritance Tax rate.
The standard Inheritance Tax rate is 40%. The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will. The net value is the estate’s total value minus any debts. There’s normally no Inheritance Tax to pay if either: the value of your estate is below the £325,000 threshold or you leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club.
Inheritance Tax must be paid to HMRC from estate funds by the person dealing with your estate (the ‘executor’, if there’s a will or ‘administrator’ if no will).
When writing your will, you must include the charity’s full name, address, and registered charity number.
Non-charitable giving
Gifts that you make to Charities during your lifetime are tax free.
When you make gifts to individuals they may have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years of making the gift. They may also have related taxes to pay, for example income tax if they get rental income from a house.
Gifts include money; household and personal goods, for example, furniture, jewellery, or antiques; a house; land or buildings; stocks and shares listed on the London Stock Exchange and unlisted shares you held for less than 2 years before your death. A gift can also include any money you lose when you sell something for less than it’s worth. For example, if you sell your house to your child for less than its market value, the difference in value counts as a gift.
If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your IHT threshold can increase to £500,000. If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.
Gift Aid
Donating to charity through Gift Aid means charities and CASCs can claim an extra 25p for every £1 you give. It doesn’t cost you any extra. Charities can claim Gift Aid on most donations, but the donor must have paid the same amount or more in Income Tax or Capital Gains Tax in that tax year and make a Gift Aid declaration that gives you permission to claim it.
You need to make a Gift Aid declaration to each charity you want to donate to through Gift Aid. Your donations will qualify as long as they’re not more than 4 times what you have paid in tax in that tax year (6 April to 5 April). The tax could have been paid on income or capital gains.
You must tell the charities you support if you stop paying enough tax.
If you pay tax above the basic rate, you can claim the difference between the rate you pay and basic rate on your donation. Do this either through your Self-Assessment tax return or by asking HM Revenue and Customs (HMRC) to amend your tax code. For example, you donate £100 to a charity, and they claim Gift Aid to make your donation £125. If you pay 40% tax, you can personally claim back £25.00 (£125 x 20%)
Keep records of Gift Aid donations if you: pay higher rate tax; claim tax credits; get a higher Personal Allowance because of your age; get Married Couple’s Allowance. If you’re claiming tax back through your Self-Assessment tax return or by asking HM Revenue & Customs (HMRC) to amend your tax code keep records showing the date, the amount, and which charities you’ve donated to.
Payroll Giving
With Payroll Giving, you do not pay the difference between the higher and basic rate of tax on your donation.
In your Self-Assessment tax return, you normally only report things from the previous tax year but for Gift Aid, you can also claim tax relief on donations you make in the current tax year (up to the date you send your return) if you either: want tax relief sooner; will not pay higher rate tax in current year, but you did in the previous year. You cannot do this if you miss the deadline (31 January if you file online) or your donations do not qualify for Gift Aid. Your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year.
If you do not have to send a tax return, contact HMRC and ask for a P810 form. You’ll need to submit it by 31 January after the end of the previous tax year.
Donating straight from your wages or pension
If your employer, company, or personal pension provider runs a Payroll Giving scheme, you can donate straight from your wages or pension. This happens before tax is deducted from your income. Ask your employer or pension provider if they run a Payroll Giving scheme.
You cannot donate to a community amateur sports club (CASC) through Payroll Giving.
The tax relief you get depends on the rate of tax you pay.
Donating land, property, or shares
You do not have to pay tax on land, property or shares you donate to charity. This includes selling them for less than their market value. You get tax relief on both: Income Tax and Capital Gains Tax
You cannot get Income Tax relief on donations to community amateur sports clubs (CASCs).
You must keep records of the donation to show that you’ve made the gift or sale and that the charity has accepted it.
Income Tax relief
You can pay less Income Tax by deducting the value of your donation from your total taxable income. Do this for the tax year (6 April to 5 April) in which you made the gift or sale to charity.
If you complete a Self-Assessment tax return, add the amount you’re claiming in the ‘Charitable giving’ section of the form. This will reduce your Self-Assessment bill. If you do not complete a tax return, write to HM Revenue and Customs (HMRC) with details of the gift or sale and your tax relief amount. You’ll either get a refund, or your tax code will be changed so you pay less Income Tax for that tax year.
Capital Gains Tax relief
You do not have to pay Capital Gains Tax on land, property or shares you give to charity but you may have to pay if you sell them for more than they cost you but less than their market value. Work out your gain using the amount the charity actually pays you, rather than the value of the asset.
Selling land, property or shares on behalf of a charity
When you offer a gift of land, property or shares, the charity may ask you to sell the gift on its behalf. You can do this and still claim tax relief for the donation, but you must keep records of the gift and the charity’s request. Without them, you might have to pay Capital Gains Tax. You normally have to keep your records for at least 22 months from the end of the tax year they’re for.
Contact our Private Client Solicitors
If you have any enquiries in relation to charitable gifts and its tax implications, please contact our private client solicitors on 020 9240 9018 or via the enquiry form on our website.