Four practical ways to support charities and reduce your tax bill

According to the Charities Aid Foundation (CAF), just 50% of adults in the UK donated to charity in 2024 – the lowest level since the organisation started recording donations in 2016.

With the cost of living continuing to rise, it’s not difficult to see why charitable donations are falling.

However, charitable giving could benefit your finances, as well as your chosen charity. In certain cases, donating to a good cause can help reduce your tax bill – so a generous donation might be more advantageous than you’d think.

Read on to discover four tax-efficient ways to boost your charitable donations whilst potentially reducing your tax bill.

1. Use Gift Aid to boost your donations and claim tax relief

Gift Aid offers a simple method for both you and your charity to get more out of your donation.

When you make your contribution, the charity should give you a Gift Aid declaration to sign, confirming that you’re a UK taxpayer. They can then make a claim for Income Tax relief on the basic rate, effectively boosting the donation by 20%.

If you’re a higher- or additional-rate taxpayer, you may also be able to claim tax relief for the difference between the basic rate and your tax rate. For example, if you pay 40% Income Tax, you could potentially claim back 20%.

However, you cannot give more than four times the amount of tax you’ve paid in the tax year, so be mindful of this limit if you’re donating large amounts.

2. Make regular donations through Payroll Giving to reduce Income Tax

Payroll Giving allows you to have regular donations deducted directly from your gross salary, after National Insurance (NI) but before taxes and other deductions are calculated.

By taking it from your salary before Income Tax, Payroll Giving can offer an effective way to reduce your tax bill. In some cases, it could even help you avoid moving into a higher tax bracket and losing valuable tax breaks – whilst offering a hassle-free way to continuously support your chosen causes.

You’ll need your employer – or pension provider, if you’re retired – to offer Payroll Giving in order to take part. So, it’s often worth checking the scheme is available to you before including it in your financial plan.

3. Donate property, land, or shares to reduce your Capital Gains Tax bill

When selling land, shares, or property other than your primary residence, you could be liable for Capital Gains Tax (CGT) for profits exceeding £3,000 in the 2025/26 tax year. However, by donating these assets to charity, you may be able to get tax relief on your CGT bill.

It’s important to keep detailed records of your donation, as failure to do so could make you ineligible for CGT relief. Sometimes, the charity may ask you to sell the assets on its behalf and donate the proceeds. If so, you must also retain records of their request.

4. Leave a gift in your will to lower your estate’s Inheritance Tax bill

If you leave a charitable legacy through your will, the donation is deducted from your estate before Inheritance Tax (IHT) liability is calculated. You can donate a fixed amount, an item, or whatever is left over after other gifts have been given.

Not only does this mean the donation itself isn’t liable for IHT, but in some cases it could reduce your estate’s IHT bill.

For charitable legacies accounting for 10% or more of your net estate, the IHT rate your beneficiaries pay could be reduced from 40% to 36%. Additionally, if your donation brings your remaining estate’s value below the nil-rate bands, your estate’s IHT bill could potentially drop further.

The nil-rate bands are currently expected to remain frozen at the following levels until 2030:

• £325,000 nil-rate band.
• £175,000 residence nil-rate band.
• If your estate is worth more than £2 million, the residence nil-rate band is tapered down, disappearing completely at £2.35 million, or £2.7 million for married couples or civil partners.

In other words, if your estate is less than £2 million and you are leaving your main residence to a direct descendant, you could leave up to £500,000 to the next generation before IHT is due – or up to £1 million, if you’re married or in a civil partnership.

Even with these allowances, your loved ones could still face a sizeable tax bill. By leaving a charitable legacy, you could help your beneficiaries pay less tax on your estate when you pass, whilst supporting a cause close to your heart.

Get in touch

By including charitable giving in your financial plan, you may be able to simultaneously support a good cause and reduce your liability for Income Tax, CGT, or IHT.

For help finding the most tax-efficient ways to make charitable donations, email us at enquiries@pen-life.co.uk or call 01904 661140.

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.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.

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