Tax-Efficient Charitable Giving

It can sometimes feel there are as many different ways to carry out charitable giving in the UK as there are individuals who give. There is every reason to embrace this. With so many vehicles, products and services available through organisations like NPT UK, donors can adapt their strategies to meet their charitable goals. On this page, we will explore various tax-effective methods of giving in the UK, outlining ways to use vehicles like donor-advised funds (DAFs) to both achieve tax relief and translate that into charitable impact.

Eight Ways to Maximise Your Charitable Giving in the UK

1. Gift Aid

Donors in the UK can pursue Gift Aid — a tax incentive that is split between the donor and the charity — when making cash donations to increase the impact of their gift. The way that Gift Aid works is that when a donor’s gift is eligible for UK Gift Aid, the value of their donation is increased by 25%. This means that if a donor makes a Gift-Aid-eligible cash contribution to their NPT UK DAF, the additional 25% reclaim amount will be credited directly to their DAF account—making more money available for future grantmaking.

If a donor pays over the basic rate of tax, they are eligible to claim the difference between their tax rate and the basic tax rate on the gross donation when completing their Self-Assessment tax return.

Gift Aid can also be used in several circumstances.

Gift Aid for Businesses: Businesses named as the primary donor to a corporate DAF can also claim tax relief on their charitable donations. However, only businesses classified as sole traders or partnerships can claim Gift Aid on their cash contributions.

Gift Aid for Partnerships: When contributions to a DAF are made from businesses incorporated as partnerships, the donation is treated as coming from each individual partner in equal measure. If the partners wish to claim Gift Aid credit in a different percentage, they will have to specify on the Gift Aid reclamation paperwork.

2. Payroll Giving

Another tax-effective—and time-saving—way to donate to charity is to contribute directly through your monthly salary. This practice, known as payroll giving, is offered by several employers throughout the UK as a way to streamline charitable giving. As a donor, you may wish to ask whether your current employer is enrolled in a payroll giving scheme; if so, you will be able to designate an amount to be taken regularly out of your pay and sent directly to the charity of your choice, which could include your DAF.

On top of the administrative work this scheme can aid donors by automating donations. Payroll giving may also provide additional tax relief. The tax relief available to donors is dependent on the rate of tax that the donor pays. By contributing directly out of one’s paycheck, a donor may be able to reduce their amount of take-home pay, which could prove useful to donors who are typically high-rate taxpayers.

3. Self-Assessment Tax Return

Many donors in the UK complete a Self-Assessment tax return and therefore may be eligible to receive a tax rebate. One option for tax-effective giving is to choose to send part—or all—of their repayment to charity. The repayment can even be contributed in cash as a Gift Aid donation, which further maximises the amount of money that is ultimately remitted to the charity.

4. Legacy Giving

A primary motivator for philanthropy is involving family members, especially children and future generations, in the donor’s charitable giving plans. Donors may wish to instill the general value of charity in their children or may hope that their children will carry on their philanthropic wishes by staying involved with the same causes and charities. Whatever the reasons, when families work together toward philanthropic goals, it can create a legacy that lasts beyond the donor’s lifetime.

NPT UK’s philanthropic experts can work with donors to create a family giving plan that works for their unique charitable aspirations. NPT UK’s donor-advised funds are structured to allow for collaboration among family members, and to create a succession plan for DAF advisement in the future. This can help donors involve their families in giving while also enjoying the best available tax relief for their contributions. For additional details on legacy planning, visit our For Family Offices page.

5. Donating Through Your Will

When thinking about long-term philanthropic impact, some donors choose to create a charitable plan for their assets beyond their lifetime. By leaving money to charity through a will, donors can not only ensure that their assets will be used for charitable purposes, but also embrace a particularly tax-effective method of giving. Designating money to charity in a will can help lower the inheritance tax placed on one’s estate, which can free up more funds for further philanthropic giving.

6. Donating Stocks and Shares

While Gift Aid only applies to cash contributions, it can still be very tax-effective to donate non-cash assets—particularly stocks and shares. By gifting HRMC-qualifying shares directly to charity, donors may be eligible for income tax relief. Some charities may be equipped to receive HRMC-qualifying shares directly as contributions, but others may not have the infrastructure or means to manage the transfer. In this case, a donor may find it useful to open a DAF, like those offered by NPT UK. DAFs are set up to receive stock contributions, offer the best possible tax relief, and liquidate the shares as soon as possible to make the proceeds available in the donor’s DAF account. Then, the donor can recommend grants from the DAF assets to any qualified charity.

7. Donating Land or Property

Cash and stock are the most common forms of giving to charity, but many donors hold assets in their portfolios that go well beyond these standards. Donors can make charitable use of many assets, such as land, property, and other real estate. This can be particularly useful in conjunction with end-of-life planning or downsizing. Planning to contribute real assets such as property or real estate can help a donor obtain exemption from capital gains tax and inheritance tax. Moreover, the donor can claim income tax relief based on the value of the gift, as determined through an independent assessment.

8. Donating Through NPT UK

Charitable giving can take many forms, and NPT UK’s experts are ready to help donors determine the right strategies for their circumstances and goals. By opening a DAF with NPT UK, donors can access premier guidance on philanthropy, and review and manage their giving strategies at any time. Donors can establish a DAF in minutes using NPT UK’s GivingPoint portal, which unlocks a wealth of resources for informing future giving. Become a Donor to learn how NPT UK can help you achieve charitable impact in a tax-effective way.

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