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Making charitable donations is a great way to support causes you care about. It can also provide tax relief, allowing you to reduce your overall tax bill. Understanding how to claim tax relief on charitable giving correctly ensures you make the most of this tax break. This article will provide an overview of the key things to know.
What donations qualify: To qualify for tax relief, your donations must be made to an organisation considered a charity for tax purposes. This includes major charitable organisations like registered charities, Community Amateur Sports Clubs (CASCs), and some churches and museums. Donations to individuals or political parties do not qualify.
You can donate either money or gifts/assets. Monetary donations are straightforward. For gifts, the charity needs to be able to use them, and you must get a valuation certified by a relevant professional.
Gift Aid: Gift Aid is the simplest and most effective way to claim tax relief on charitable donations. It allows charities to reclaim the basic rate tax on your donation. This increases its value by 25%. All you need to do is declare Gift Aid when you donate. The charity then claims tax relief directly from HMRC.
You must pay enough income or capital gains tax in the same year to cover the amount reclaimed by the charity. Paying a higher tax rate allows you to claim even more relief on your self-assessment tax return.
Non-Gift-Aided donations: You can still get tax relief on donations you have not made under Gift Aid. Report them on your self-assessment tax return. You will get relief at your highest rate of tax. So basic rate taxpayers get 20% tax relief, a higher rate of 40%, and an additional rate of 45%.
Limits: There are limits to how much you can claim in tax relief:
- Gift Aid donations are capped at four times your total income for the tax year
- Non-Gift Aided donations have no limits, but tax relief is capped at the amount that reduces your tax bill to zero
- Gifts of assets are based on a percentage of your income, depending on the type of asset
Declaring on your tax return: You need to declare any Gift Aid donations and non-Gift Aided donations for which you want tax relief on your self-assessment tax return. For Gift Aid, you’ll need to tick a box to say you want to claim for all qualifying Gift Aid donations. You do not need to list each one. For non-Gift Aided donations, you will need to enter the details of each donation individually, including the date, amount and charity.
Paying less tax Claiming tax relief on your donations will reduce the total tax you owe. For basic and higher rate taxpayers, it increases the value of the donation to the charity.
When you get your tax refund, you can donate it to charity again! This allows you to increase your charitable impact. Claiming tax relief on donations is easy but requires keeping proper records. Making Gift Aid declarations maximises the relief you can get. Considering the tax impacts allows you to donate more intelligently. Support the causes you care about while reducing your tax burden.
Contact our tax advisors for self assessment tax return and deductible expenses and how to calculate and claim them on your tax return.