‘Tis the season of goodwill ...

The festive season seems to have started early with decorations everywhere and many people started in November as a reaction to the virtual non-event of Christmas 2020.

This is the time of year when many people start thinking about helping others and when that includes a donation of money the goodwill does actually benefit everyone!

Personal donations

Any donations that an individual makes to a registered charity can add more benefits for the charity by signing a Gift Aid form. 

For lower band tax payers (earning up to £50K per annum) that means the charity can claim an additional 25% from HMRC, as long as you have paid income tax during that year. So for every £1 you donate the charity gets £1.25.

If you're a higher rate tax payer, there are additional benefits. Whatever amount you donate effectively extends your higher rate tax band. So, if you donate £1,000, the higher tax rate comes into effect at £51,000 instead of £50,000. This means you pay tax at a lower rate on more of your income when you submit your tax return, effectively giving you an extra 20% saving.

Company donations

Any donations from a limited company to a registered charity are completely tax free. The downside is that the charity cannot claim gift aid.

You save 19% on your corporation tax, but the charity only gets what you give them. That may influence the size of your donation. If you give a little more, you get more tax relief and the charity benefits too.

If your company gives more than £2,000 in any tax year, you will have to report the specifics of how much you have given to which charities, so that HMRC can verify that the donations are going to registered charities.

Leaving a legacy

You can leave a gift to any registered charity in your Will. This benefits your chosen charity (or charities), and also doesn't count towards the inheritance tax on your estate.

If you give 10% or more of your estate it reduces your inheritance tax rate. 

You can leave cash, items of value or property to charities in your Will. The value of any non-cash items will be deducted from the overall value of your estate for tax purposes.

HMRC support charitable donations - so they're also part of the goodwill glow at this time of year!