Making a donation to charity is not only good news for the cause, it could be good news for donors too, according to Pam our tax expert at Dyke Yaxley Chartered Accountants.
Pam Mason from our office in Shrewsbury, said many people donated to charity either by making payments throughout their lifetime, or by leaving money in their will.
“According to the Charities Aid Foundation, 60% of people in the UK have given money to charity in the last 12 months, donating an estimated £10.3 billion altogether.
“And while supporting a good cause is worthwhile in itself, certain charitable donations can also go towards reducing your income tax bill, or cut down the inheritance tax liability of your estate.”
Pam said there were several ways to make a donation to a cause you care about, such as giving to charity directly from your salary.
“To do this, your employer will need to operate a payroll giving scheme which will allow you to give whatever amount you choose to any charity that is recognised by HM Revenue and Customs. As the donation is being taken from your pay before tax, you’ll benefit from tax relief depending on your marginal rate of tax: basic rate 20%, higher rate 40% and additional rate 45%.”
Pam said Gift Aid was another option, which allows charities and some community sports clubs to claim an extra 25p for every £1 donated.
“This won’t cost you anything and you can usually set it up by completing a Gift Aid declaration form. If you pay above the basic rate of tax, you can claim the difference between the rate you pay and the basic rate on the amount you donate.
“But your donation will only qualify if it’s less than four times what you paid in tax in the previous tax year.”
Donations left to charity in a will are exempt from inheritance tax as they don’t count towards the taxable value of your estate.
“So whether you leave a fixed amount of money, a valuable item, or the remainder of your estate after other gifts have been given out, the charity will benefit from your bequest. Planning carefully means a charitable donation could be good news for not only the cause you support, but for your tax affairs too.”
Pam Mason – Tax Planning Consultant