Investors Club: Tax Benefits for Individuals
If you are an individual looking to become a philanthropic donor, there are several tax benefits you could receive depending on your type of giving.
- Gift Aid
- Getting tax relief sooner
- Donation straight from your wages or pension
- Donating land, property or shares
- Leaving gifts to charity in your will
Donating through Gift Aid means charities can claim an extra 25p for every £1 you give. It will not cost you any extra.
Charities can claim Gift Aid on most donations, but some payments do not qualify.
What you need to do
You need to make a Gift Aid declaration for the charity to claim. You usually do this by filling in a form – contact the charity if you have not got one.
You must give a declaration to each charity you want to donate to through Gift Aid.
You can include all donations from the last 4 years. Tell the charity about any tax years where you did not pay enough tax.
Keep records of your donations through Gift Aid 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.
Paying enough tax to qualify for 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).
You must tell the charities you support if you stop paying enough tax.
Higher rate taxpayers
- through your Self Assessment tax return
- by asking HM Revenue and Customs (HMRC) to amend your tax code
Example You donate £100 to charity – they claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00.
With Payroll Giving, you do not pay the difference between the higher and basic rate of tax on your donation.
Getting tax relief sooner
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)
- 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.
The tax relief you get depends on the rate of tax you pay. To donate £1, you pay:
- 80p if you’re a basic rate taxpayer
- 60p if you’re a higher rate taxpayer
- 55p if you’re an additional rate taxpayer
The tax relief you get is different if you live in Scotland. To donate £1, you pay:
- 81p if you’re a starter rate taxpayer
- 80p if you’re a basic rate taxpayer
- 79p if you’re a intermediate rate taxpayer
- 59p if you’re a higher rate taxpayer
- 54p if you’re a top rate taxpayer
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
- Capital Gains Tax
You must keep records of the donation to show that you’ve made the gift or sale and that the charity has accepted it.
For donations of land, property or shares you need to keep:
- legal documents showing the sale or transfer to charity
- any documents from a charity asking you to sell land or shares on its behalf
- You normally have to keep your records for at least 22 months from the end of the tax year they’re for.
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.
How to claim
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.
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.
Leaving gifts to charity in your will
Your will says what will happen to your money, property and possessions after you die.
Your donation will either:
- be taken off the value of your estate before Inheritance Tax is calculated
- reduce your Inheritance Tax rate, if 10% or more of your estate is left to charity
You can donate:
- a fixed amount
- an item
- what’s left after other gifts have been given out
Writing your will
- Find out how to write or update your will, including how to make sure it’s legal.
- Include the charity’s full name – check with them or search the charity register in England and Wales, Scotland or Northern Ireland.
- You need to keep records of donations if you want to claim tax back on them.