3 Ways of Charitable Giving That Provide Tax Relief
As the festive season approaches, our thoughts turn to those in need, whether affected by poverty, war, homelessness, or other challenges. Making a charitable donation is a meaningful way to spread compassion and make a positive impact on the lives of others. While the act of giving is its own reward, it’s worth noting that charitable donations offer tax benefits in return, making them an even more appealing way to extend your generosity.
Charitable Donations – a Benefit for Society and Your Wallet
The UK government recognises the profound impact of charitable donations in supporting those in need, both within the country and abroad. As a result, they encourage generous giving by offering tax relief to those who support worthwhile causes. This incentive not only boosts charitable contributions but also benefits taxpayers by reducing their tax burden.
In this blog, the Harpur Wealth team discuss 3 ways to maximise tax deductions from charitable donations, making your acts of giving even more rewarding.
1. Maximising Your Charitable Giving With Gift Aid
Gift Aid is a form of tax relief that increases the impact of your charitable donations. When you donate to a UK-registered charity or community amateur sports club, you can make your generosity go even further with Gift Aid.
Simply by making a Gift Aid declaration, you authorise the charity to claim an extra 25p for every £1 you donate. So for tax payers this means that for every £100 you donate, the charity receives £125, with the government covering the additional £25.
The benefits of Gift Aid extend even further for higher and additional rate taxpayers. Not only does the charity receive the enhanced donation, but you can also claim an additional tax relief on your donation, effectively reducing your tax bill.
To take advantage of Gift Aid, you should ensure that the charity you’re donating to is registered with HMRC and that you have completed a Gift Aid declaration form. This simple step can significantly amplify the impact of your charitable contributions, creating a double benefit: making a difference for those in need and potentially saving money on your taxes.
2. The Power of Payroll Giving
The Payroll Giving scheme encourages charitable giving by enabling employees to donate to the charities of their choice directly from their gross pay or pension, before taxes are applied. This straightforward approach not only increases the impact of your contributions but also offers significant tax benefits.
With Payroll Giving your generosity starts at a higher amount, as the deduction is made before income tax is calculated. This means that for every £1 you donate, basic rate taxpayers receive 80p back in tax relief, while higher rate taxpayers receive 60p and additional rate taxpayers receive 55p.
The beauty of Payroll Giving lies in its simplicity. You can sign up for the scheme through your employer, and your donations will be automatically deducted every pay period. This ensures that your generosity extends beyond the initial commitment, making it a consistent and effective way to support worthwhile causes.
3. Minimising Inheritance Tax through Charitable Bequests
Inheritance Tax (IHT) can impose a significant financial burden on families when an individual passes away. At Harpur Wealth Management, we understand the concerns of our clients regarding the impact of IHT and work closely with them to develop strategies that reduce their tax liability.
One effective way to mitigate IHT is through charitable bequests. By leaving a portion of your estate to charity in your will, you can significantly reduce the amount of IHT payable on the remainder of your assets. This means that your loved ones will inherit a larger share of your wealth, while you also make a lasting contribution to causes you care about.
For estates valued at over £325,000, leaving 10% or more of your assets to charity can lower the IHT rate from 40% to 36%. This means that your charitable gift not only supports meaningful causes but also directly benefits your loved ones by reducing the IHT they have to pay.
By incorporating charitable bequests into your estate planning, you can achieve a dual benefit: making a positive impact on the world while ensuring a more comfortable inheritance for your family.
Harpur Wealth Can Help With Charitable Giving
Harpur Wealth Management is not regulated to provide tax advice and therefore you must consult your tax adviser for information you intend to rely on.
Charitable giving is not just about making a difference in the world; it can also be a smart financial decision. By maximising tax benefits and aligning your charitable contributions with your financial goals, you can make a meaningful impact while also protecting your own future.
At Harpur Wealth Management, we understand the intricacies of charitable giving and its potential to enhance your financial well-being. Our experienced financial advisors will work closely with you to develop a personalised plan that optimises your charitable contributions and benefits your overall financial objectives. We believe that charitable giving is a powerful tool for both social good and personal prosperity.
For the Harpur Wealth team getting to know our clients deeply is a fundamental aspect of our approach. The better we understand your financial goals, the more precise and effective our strategies become in realising them.
Would you like to have a conversation with one of our local financial advisors regarding the tax benefits associated with charitable giving? Contact our friendly team at Harpur Wealth Management today to schedule a FREE consultation at 01234 924620.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.
The value of your investment can go down as well as up and you may get back less than the amount invested.
‘The Financial Conduct Authority does not regulate taxation advice’