Navigating Charitable Contributions: Understanding Tax Implications with Lyons Bowe

Charitable giving is a meaningful way to support causes close to your heart, but did you know it can also provide tax benefits? In the UK, donations to registered charities can reduce your tax liability through schemes like Gift Aid, Payroll Giving, and Inheritance Tax relief. At Lyons Bowe, we help individuals and businesses navigate the legal and tax implications of charitable contributions to ensure they maximize their giving while staying tax-efficient.

In this guide, we’ll explore the tax benefits of charitable donations and how Lyons Bowe can assist you.

1. How Charitable Donations Can Reduce Tax

Gift Aid: Increasing the Value of Your Donation

Gift Aid is one of the most effective ways to make your donations go further. When you donate to a registered UK charity and opt into Gift Aid, the government adds 25p for every £1 donated—at no extra cost to you.

Tax Benefits for Donors

• If you’re a basic-rate taxpayer (20%), there’s no extra relief to claim.
• If you’re a higher-rate (40%) or additional-rate (45%) taxpayer, you can claim back the difference between your tax rate and the basic rate (e.g., 20%) through your Self-Assessment tax return.
• Example: If you donate £100, the charity receives £125 with Gift Aid, and a higher-rate taxpayer can claim back £25 in tax relief.

Payroll Giving: Pre-Tax Donations from Your Salary

Payroll Giving allows employees to donate directly from their salary before tax is deducted. This means:

• A £10 donation only costs £8 for basic-rate taxpayers, £6 for higher-rate taxpayers, and £5.50 for additional-rate taxpayers.
• There’s no need to claim tax relief separately.
• Your employer must be enrolled in a Payroll Giving scheme for this to apply.

Inheritance Tax (IHT) Relief on Charitable Gifts

Leaving a gift to charity in your will can reduce Inheritance Tax (IHT) on your estate. Normally, estates above the £325,000 threshold are taxed at 40%, but:

• If you leave 10% or more of your estate to charity, the IHT rate reduces to 36%.
• Any donation to a registered charity is completely tax-free.

Example:

• An estate worth £500,000 with no charitable donation would incur £70,000 in IHT.
• If 10% (£50,000) is donated to charity, the IHT rate drops to 36%, reducing the tax bill to £64,800.

2. Tax Benefits for Businesses Donating to Charity

Businesses can also benefit from tax relief when donating to charity.

Corporation Tax Relief

Limited companies can deduct charitable donations from their taxable profits, reducing their Corporation Tax bill. Eligible donations include:

• Cash donations
• Sponsorship payments
• Equipment, property, or land
• Employee secondments to charities

VAT on Charitable Donations

If a business donates goods to charity, it may be able to claim VAT relief. However, VAT rules can be complex, and seeking legal guidance ensures compliance.

3. How Lyons Bowe Can Help You Maximise Your Charitable Giving

At Lyons Bowe, we assist individuals and businesses in structuring charitable donations to maximize tax efficiency. Whether you need help with:

• Including charitable gifts in your will
• Claiming tax relief on donations
• Navigating Inheritance Tax planning
• Setting up charitable trusts

Our team provides expert legal and financial advice to ensure you support your chosen charities while making the most of tax benefits.

4. Contact Lyons Bowe for Expert Guidance

If you’re considering charitable giving and want to understand its legal and tax implications, we’re here to help.

Get in Touch Today

Let us help you make your charitable giving as tax-efficient as possible while leaving a lasting impact!