Are Charitable Donations Tax Deductible in the UK?

The UK tax system offers incentives for individuals and businesses to support charities. These provisions provide tax relief on qualifying donations, allowing donors to maximize their impact and benefit from reduced tax liabilities.

Qualifying Donations and Charities

For UK tax relief, donations must go to an organization recognized as a charity by HM Revenue and Customs (HMRC). This includes charities registered with the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator (OSCR), or the Charity Commission for Northern Ireland. Community Amateur Sports Clubs (CASCs) also qualify. Donations to EU or EEA charities ceased to be eligible for UK tax relief after April 2024.

Qualifying donations include assets like money, shares, securities, land, and property. To be eligible, the donation must be an outright gift, with the donor receiving no significant personal benefit. If benefits exceed certain limits relative to the donation, the gift may not fully qualify for tax relief.

When donating money via Gift Aid, individuals must confirm they are UK taxpayers and have paid enough Income Tax or Capital Gains Tax to cover the basic rate tax the charity reclaims. This ensures the reclaimed tax does not exceed the donor’s tax liability. Failure to meet this condition may require the donor to pay the shortfall to HMRC.

How Tax Relief Works for Different Donations

The UK tax system offers various mechanisms for tax relief on charitable donations, depending on the donation type and donor status. For individual cash donations, Gift Aid is common. Under this scheme, charities reclaim basic rate tax from HMRC, increasing the gift’s value by 25p for every £1 donated. A £100 donation, for example, becomes £125 for the charity at no extra cost to the donor.

Higher and additional rate taxpayers can claim further tax relief on Gift Aid donations. This relief covers the difference between the basic rate tax (20%) the charity reclaims and their higher marginal tax rate (40% or 45%). For a higher-rate taxpayer, a £100 donation (which becomes £125 with Gift Aid for the charity) could result in an additional £25 reduction in their personal income tax bill.

Payroll Giving, or Give As You Earn, allows employees to donate directly from their gross pay. Tax relief is automatically applied before income tax calculation, effectively making the donation from pre-tax earnings. The relief amount depends on the donor’s highest tax rate, and the charity receives the full donation.

Donating assets like shares, securities, land, or property offers distinct tax benefits. Donors avoid Capital Gains Tax on the donated asset. They also receive Income Tax relief on the gift’s value, deducted from their taxable income in the donation year. This relief can significantly reduce a donor’s overall tax liability.

Companies also receive tax relief on charitable donations. When a company donates to a registered charity, it can deduct the donation’s value from its total profits before Corporation Tax calculation. This reduces the company’s taxable profits and Corporation Tax liability. Unlike individuals, companies do not use the Gift Aid scheme.

Charitable gifts can also influence Inheritance Tax. Gifts to charity are generally exempt from Inheritance Tax, not included in estate valuation. If an individual leaves 10% or more of their net estate to charity, the Inheritance Tax rate on the remainder can be reduced from 40% to 36%.

Claiming Your Tax Relief

Higher or additional rate taxpayers making Gift Aid donations can claim additional tax relief in several ways. The most common method is via their Self Assessment tax return, reporting total Gift Aid donations. Alternatively, individuals can contact HMRC directly to adjust their PAYE (Pay As You Earn) tax code, reducing tax deducted from salary or pension.

For donations of shares, land, or property, individuals typically claim Income Tax and Capital Gains Tax relief through their Self Assessment tax return. If they do not usually complete a Self Assessment return, they can contact HMRC to provide gift details. HMRC may then issue a refund or adjust their tax code for the relief.

With Payroll Giving, employees do not need to claim tax relief. Their employer automatically applies the relief before tax is deducted from wages or pension. This makes Payroll Giving a straightforward way to donate tax-efficiently.

Companies claim tax relief for charitable donations by deducting qualifying amounts from their taxable profits when preparing their company tax return. This reduces the overall profit subject to Corporation Tax, lowering the company’s tax bill.

Maintaining accurate records is important for all charitable donations. Donors should keep copies of Gift Aid declarations, donation receipts, and, for non-cash gifts, valuation reports or other asset documentation. These records support tax relief claims and may be requested by HMRC during checks.