How Giving to Charity Can Lower Your Tax Bill

While investors often give generously to charity, many can be unaware how to do so in a tax-efficient way. We outline their options

David Brenchley 15 March, 2019 | 3:34PM
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The forthcoming intergenerational transfer of wealth is a topic that has been covered many times. Estimates suggest that 25-to-45-year-olds expect to receive more than £1.2 trillion in inheritances within the next three decades.

The question is what this generation will do with such a huge sum. Of course, the fund management industry will be hoping they decide to invest in equities. While that could happen, some consumer education may be needed to encourage it.

A recent survey from Sanlam UK suggests many (12%) intend to gift some of their windfall to a charity or cause close to their hearts.

For those looking to do this, it’s important for people to understand their options. As Sagar Morjaria, wealth adviser at Canaccord Genuity Wealth Management, points out there are ways to maximise the benefits of giving both to your chosen charities as well as your own personal tax situation.

Gift aid, Morjaria explains, can be invaluable in doing this. Through gift aid, for every £1 a UK taxpayer gives to charity, their charity can claim an extra 25p without any extra cost to the donor.

Tax Breaks

While there are obvious benefits for the charities that are, according to Sanlam, set to secure millions of pounds worth of donations over the next 30 years, there are also perks for donors.

Higher and additional rate taxpayers can claim back the difference between the rate they pay and the basic rate on their donations via self-assessment or by asking HMRC to amend their tax code.

“It's something nice for higher and additional taxpayers to think about doing before the end of the tax year, as it gives them the feelgood factor, in addition to being beneficial from a tax perspective,” says Morjaria.

You can also consider donating shares to charity before the end of the tax year for additional tax benefits.

You won’t be liable for capital gains tax on shares given to charity, while it may be possible to deduct the value of your share donation from your total taxable income, meaning it’s a good way of mitigating your tax bill.

“If gains have been particularly high in a few shares, you could dilute your position and maximise your tax efficiency by donating them to charity,” explains Morjaria.

One final thing to consider is donating directly from your salary or pension through Payroll Giving, if your workplace is able to offer it.

“The issue is that not many higher-rate taxpayers realise they can offset their charitable donations against their tax return and even fewer seek to claim it,” Morjaria adds

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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David Brenchley

David Brenchley  is a Reporter for

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