Various tax incentives are available to individuals to encourage giving to charity. These incentives provide opportunities for UK tax payers to structure charitable giving in a way which both saves tax and maximises the value of donations for recipient charities.
Gift Aid
The Gift Aid scheme allows charities to claim basic rate tax of 20% on your donation.
When you make a donation with Gift Aid, the charity can claim 20% extra on the pre-tax amount that you earned to make your donation. For example, if you donated £100 to The Lancashire Wildlife Trust and we were able to claim Gift Aid, the value of your donation would rise to £125. Learn more about how this is calculated here.
Tax relief is also available to UK donors paying higher rates of income tax (40% or 45% for tax year 2023/24). This enables you to reclaim the difference between the basic rate and the highest rate of tax on the gross value of your gift via your self-assessment tax return. If you do not fill in a self-assessment tax return, you can obtain your tax relief by calling HMRC on 0300 200 3300 and having your tax code amended. You can then either keep any money reclaimed or donate it back to the charity.
Donating directly out of your salary
Payroll Giving is a tax efficient donation scheme offered by some employers. It allows charitable donations to be deducted from your monthly salary after the deduction of National Insurance but before the deduction of income tax. These donations are then paid over to a UK charity of your choosing.
When you donate through Payroll Giving, you receive tax relief on your donation immediately. This means that the actual cost to you depends upon the rate at which you are taxed. To donate £1, a basic rate taxpayer pays 80p.
The same donation would cost higher rate taxpayers 60p (or 55p for additional rate taxpayers). The tax you would have paid on your donation is also given to the charity.