Charities are facing a “perfect storm”. Here’s how you could support good causes tax-efficiently

Published on June 9, 2023 by Blackstone

Charities are facing a “perfect storm” due to rising energy prices, falling donations, and a surge in demand for services, according to a Nationwide report. If you want to support good causes, there are several ways you could do so tax-efficiently.

The report found 6 in 10 Brits have cancelled or cut down charitable giving due to the cost of living crisis. Compounding this challenge is the fact that more need support – 1 in 3 people have needed to access the services provided by a charity since the crisis began.

The most common reasons for seeking charitable help are worries about:

• Money (37%)
• Mental health (29%)
• Housing (20%)

Giving to charities that are important to you can also have tax benefits. Here are five ways you can give in a tax-efficient way.

1. Use Gift Aid

If you’re a taxpayer, one of the simplest steps you can take when gifting is to tick the Gift Aid box.

Gift Aid means the charity can claim back the basic rate of Income Tax you’ve already paid on the donation. So, if you donate £100, the charity will benefit from £125. Usually, you just need to fill in a Gift Aid declaration form when donating. 

In addition, higher- and additional-rate taxpayers can claim back the rest of the Income Tax paid. So, if you’re a higher-rate payer and make a £100 donation, you’ll also be able to claim back £25 in tax relief. You can do this by completing a self-assessment tax return.

2. Donate directly from your salary

Some employers allow you to make charitable donations directly from your salary.

This helps charities as it encourages employees to set up regular donations they can rely on.

The donation is typically given to the charity before tax is calculated. So, basic-rate taxpayers only need to donate £8 for the charity to receive £10. Again, if you’re a higher- or additional-rate taxpayer, the benefits are even more valuable.

Depending on your circumstances, making charitable donations directly from your salary could reduce your overall Income Tax bill.

3. Leave a charitable legacy in your will

You can also make supporting charitable causes part of your estate plan, by including a donation in your will. This may be to pass on certain assets to charity or a proportion of your estate.

Charitable donations are not liable for Inheritance Tax (IHT) and could reduce the overall bill. The nil-rate band in 2023/24 is £325,000. If the total value of your estate exceeds this threshold it may be liable for IHT.

A charitable legacy could help to reduce a potential IHT bill in two ways:

1. It could bring the value of your estate under the IHT threshold, so your estate wouldn’t be liable for the tax.
2. If you leave at least 10% of your estate to charity, the rate of IHT falls from 40% to 36%. In some cases, you could support charitable causes and leave more behind for your loved ones.

There are often steps you can take if IHT is a concern, so please contact us to discuss your estate.

4. Gift shares to a charity

As well as accepting monetary donations, charities often accept shares. The charity may hold the shares to create an income or sell them.

Giving HMRC-qualifying shares to a good cause means you get Income Tax relief on the value of the shares. Donated shares are often eligible for Gift Aid, which helps your gift to go further and could mean you’re able to claim some Income Tax back.

The shares will also be exempt from Capital Gains Tax (CGT).

Depending on your circumstances, gifting shares could be tax-efficient.

5. Donate through your business

If you’re a business owner, have you considered supporting good causes through your business? The Nationwide report found 69% of people believe big companies have a responsibility to support local communities.

Donations made to charities are deductible from the company’s total profits in the year in which they were made. As a result, you may be able to support good causes while reducing your Corporation Tax bill.

Contact us to discuss making charitable giving part of your financial plan

If giving to charitable causes is important to you, you should make it part of your financial plan. It’s a step that can ensure you meet your giving goals, as well as make the most of tax breaks. Please contact us to talk about your wishes.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.