3 financial benefits of supporting a good cause

Giving to charity can help support those who most need it, bring about a better world, and give less fortunate people a better chance in life.

Research from the Charity Aid Foundation shows that the UK is full of generous souls, and donated a total of £13.9 billion in 2023 – an increase of £1.2 billion from the previous year.

If you already donate to charities and support good causes, it’s likely because you believe in their mission rather than for personal benefit.

However, in addition to making a difference, charitable giving can also offer valuable financial benefits. Read on to learn about three of them.

1. Gift Aid offers tax relief for you and your chosen charity

Donating through Gift Aid can increase the value of your donation and provide you with tax relief, if you’re in the higher Income Tax brackets.

When you donate through Gift Aid, registered charities and community amateur sports clubs (CASCs) can claim an extra 25p for every £1 you give, at no extra cost to you. This is because they can reclaim the basic rate of Income Tax that has already been paid on your donation.

For example, if you donate £100, the charity will receive £125 through the Gift Aid scheme.

If you are a higher- or additional-rate taxpayer in England, Wales, or Northern Ireland, you can also reclaim the difference between your highest tax rate and the basic rate of 20% (which the charity has already claimed). So, if you’re a higher-rate taxpayer, you can reclaim an extra 20%, and if you’re on the additional rate, you can claim 25%.

You can claim this additional relief through your self-assessment tax return by entering details of all your Gift-Aided donations in the charitable giving section of the form. If you don’t fill in a self-assessment form, you can tell HMRC about your charitable donations, and they can adjust your tax code.

To qualify for Gift Aid, you must be a UK taxpayer and have paid at least as much Income Tax or Capital Gains Tax (CGT) in that tax year as the charity is reclaiming.

2. Payroll giving can reduce your total tax bill

Payroll giving is a simple and tax-efficient way to support good causes while maximising the value of your donations.

If your employer, company, or personal pension provider offers a payroll giving scheme, you can donate directly from your wages or pension before tax is deducted. This means you receive immediate tax relief based on your Income Tax rate, making your donation more cost-effective.

For example, to donate £100, you would pay:

£80 if you’re a basic-rate taxpayer
£60 if you’re a higher-rate taxpayer
£55 if you’re an additional-rate taxpayer.

The minimum donation is typically £1 a week or £5 a month, and you can give to multiple UK-registered charities or charitable organisations, provided they are recognised by HMRC.

3. Leaving a charitable legacy can mitigate Inheritance Tax on your estate

Donations left in wills make up a significant share of charitable giving in the UK.

A study reported by IFA revealed that around £2.1 billion was left to charities through legacies last year. Indeed, some charities heavily depend on such donations. For example, in 2022/23, Cancer Research UK received £261 million from legacies, accounting for more than a third of its £719 million income.

One of the key tax benefits of leaving a charitable donation in your will is that these gifts are exempt from Inheritance Tax (IHT) and do not count as part of your estate. Additionally, if you leave at least 10% of your net estate to charity, the IHT rate on the remainder of your estate is reduced from 40% to 36%, potentially lowering the tax burden for your beneficiaries.

Charitable gifts also don’t have to be cash. You can choose to leave property, shares, or other assets, and donations can take the form of a specific amount or a residuary legacy, which is a percentage of what remains after other distributions and taxes have been settled.

If you’re considering including a charity in your will, it’s important that you include the charity’s registered number to ensure your donation reaches the intended cause. And be sure to review and update your will regularly in case the charity’s name, focus, or status changes.

Get in touch

A financial planner can help you structure your giving in a way that maximises both its impact and your financial benefits. They can guide you on the best strategies for tax relief, ensure your donations align with your broader financial goals, and help you understand any administrative considerations.

Email [email protected] or call us on 01625 466360.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.