Tax-effective charitable giving is about supporting a charity while using the tax reliefs that are already built into the UK system.
The aim is not to turn giving into a tax exercise. It is to understand how different ways of donating can reduce your own tax bill, increase the value reaching the charity, or sometimes do both.
In this episode, we work through four routes: Gift Aid, Payroll Giving, donating land, property or shares, and leaving gifts to charity in your will.
About this episode
Charities do valuable work across health, education, the arts, community support, poverty relief and many other areas. They need reliable funding to sustain that work and continue creating impact.
Tax relief can make a difference to both sides of the donation. In some cases, the charity receives more. In others, the donor pays less tax. The important point is to use the right mechanism for the type of gift you are making.
“Tax effective giving is where you make a donation to a charity, minimise and reduce your own tax exposure, your own tax liability, nothing wrong with that, and also maximise the income, maximise the return for a charity.”
The 4 main ways to give tax effectively
The episode focuses on four methods that are still relevant today:
- Gift Aid on qualifying cash donations.
- Payroll Giving through wages or a pension.
- Gifts of land, property or shares to charity.
- Gifts in your will that can reduce the Inheritance Tax position of your estate.
Each route works differently, so the best option depends on what you are giving and your own tax position.
1. Gift Aid
Gift Aid is the first route and is covered in more detail in our guide to Gift Aid and charitable giving.
For every £1 you donate under Gift Aid, a charity can normally reclaim 25p from HMRC. That turns a £100 qualifying donation into £125 for the charity.
You must have paid enough UK Income Tax or Capital Gains Tax to cover the amount reclaimed. If the charity claims more than the tax you have paid, HMRC can ask you to make up the difference.
If you pay tax above the basic rate, you may also be able to claim additional tax relief personally on qualifying Gift Aid donations.
Gift Aid therefore has two sides: the charity can increase the value of the donation, and some higher-rate taxpayers may also reduce their own tax bill.
2. Payroll Giving
Payroll Giving lets you donate to charity directly from your wages or pension through PAYE.
The donation is taken before Income Tax but after National Insurance. That means you receive Income Tax relief immediately through payroll, but you still pay National Insurance on the amount donated.
This is one of the key distinctions from Gift Aid.
The charity receives the donation through an HMRC-approved Payroll Giving agency. Your employer or pension provider needs to operate the scheme.
What does a £100 Payroll Giving donation cost?
For 2026/27, the main employment Income Tax rates in England, Wales and Northern Ireland remain 20%, 40% and 45%.
So, where the whole donation receives relief at the relevant marginal rate, a £100 Payroll Giving donation can effectively cost:
- £80 for a 20% taxpayer
- £60 for a 40% taxpayer
- £55 for a 45% taxpayer
The charity still receives the £100 donation, before any agency administration charge where one applies.
“The tax saving will increase the higher the rate of tax that you’re paying.”
Scottish Income Tax has different bands and rates, so the saving depends on the donor’s Scottish marginal rate.
HMRC publishes a list of Payroll Giving agencies, although its public list is not necessarily every agency that has approval.
Payroll Giving can help employers too
The episode also looks at the employer side.
Payroll Giving can give employees a convenient way to support charities regularly. At the same time, employers can use the scheme as part of their wider social responsibility and community-support activity.
An employee can choose the charity they want to support, subject to the scheme arrangements, and regular donations can give charities a more predictable stream of income.
One important current rule is that charities cannot also claim Gift Aid on Payroll Giving donations. The tax relief is already given through payroll.
3. Donating land, property or shares
The third route is to give certain assets to charity rather than cash.
Qualifying gifts of land, property or shares can attract both Income Tax and Capital Gains Tax relief.
For Income Tax, you may be able to deduct the value of the qualifying gift from your taxable income for the tax year in which the gift is made.
For Capital Gains Tax, you do not normally pay CGT on land, property or shares that you give to charity.
This can make an asset gift particularly useful where you want to support a charity and the asset has increased in value.
What if the charity would rather receive cash?
A charity may not want the practical responsibility of holding or selling land, property or shares.
HMRC allows a charity to ask you to sell the asset on its behalf. You can still claim the relevant relief, but you need records showing the gift and the charity’s request for you to sell it.
That detail matters. Simply selling an asset yourself first and then making an ordinary cash donation is not automatically the same as gifting the asset to the charity for these reliefs.
If the charity pays you something for the asset rather than receiving it as a full gift, the tax treatment can also change.
4. Leaving gifts to charity in your will
The final route is charitable giving through your will.
Outright gifts to qualifying charities are generally exempt from Inheritance Tax.
There is also a reduced Inheritance Tax rate where enough of the estate is left to charity.
The normal headline IHT rate is 40%. If at least 10% of the relevant net estate is left to charity, the rate applying to the qualifying part of the estate can fall to 36%.
The 10% test is more technical than simply taking 10% of the total estate value, because liabilities, exemptions, reliefs and different components of an estate can affect the calculation.
So if charitable giving is going to form part of your estate planning, the will and the tax calculation need to be structured properly.
Tax relief should support the giving decision
The episode’s wider message is that tax relief should help you give more effectively, not dictate which causes you support.
Start with the charity or cause you want to help. Then look at which giving route fits the money or asset you intend to donate.
For a cash gift, Gift Aid may be the obvious route. For regular giving from employment income, Payroll Giving may be more convenient. If you own qualifying shares or property, an asset donation can have a different tax result. If you are planning your estate, a charitable legacy may reduce the IHT burden as well as leave money to a cause you value.
A practical tax-effective giving checklist
- Choose the cause first. Decide which charity or charities you want to support.
- Identify what you are giving. Cash, salary, shares, property and a legacy can all have different rules.
- Check the tax route. Do not assume every charitable payment qualifies for the same relief.
- Keep the evidence. Gift Aid declarations, payroll records and asset-gift documentation can all matter.
- Check your own tax position. Your rate of tax and the amount of tax you have actually paid can affect the relief available.
- Use current HMRC guidance. Tax rates and administrative details can change.
- Get advice for larger gifts. Property, shares and estate planning can justify professional tax or legal advice.
FAQs
What is tax-effective charitable giving?
It means making a charitable donation in a way that uses available tax relief properly, potentially reducing the donor’s tax bill, increasing what the charity receives, or both.
How does Gift Aid increase a donation?
For a qualifying Gift Aid donation, the charity can normally reclaim 25p for every £1 donated. A £100 donation can therefore become £125 for the charity.
Does Payroll Giving reduce National Insurance?
No. Payroll Giving donations are taken before Income Tax but after National Insurance, so the relief applies to Income Tax rather than National Insurance.
Can I get tax relief for donating shares or property to charity?
Potentially, yes. Qualifying gifts of land, property or shares can attract Income Tax relief and Capital Gains Tax relief.
Can I sell shares for a charity and still claim the asset-gift relief?
Potentially, if the charity has asked you to sell the gifted asset on its behalf and you keep the required records. Selling the asset independently and then donating cash is not necessarily treated the same way.
Can charitable gifts in a will reduce Inheritance Tax?
Yes. Outright gifts to qualifying charities are generally exempt from IHT, and leaving at least 10% of the relevant net estate to charity can reduce the rate on the qualifying part from 40% to 36%.
Are Payroll Giving tax savings different in Scotland?
They can be. Scotland has different Income Tax bands and rates, so the amount of relief depends on the donor’s Scottish marginal rate.
Episode Timecodes
- 00:00 – What tax-effective giving means
- 00:44 – The four main giving methods
- 01:03 – Why charitable funding matters
- 02:02 – Gift Aid and Payroll Giving
- 02:24 – Why regular Payroll Giving helps charities and employers
- 02:46 – Income Tax rates and Payroll Giving relief
- 03:21 – The cost of a £100 Payroll Giving donation
- 03:45 – How Payroll Giving agencies work
- 04:19 – Choosing charities through Payroll Giving
- 04:41 – Scottish tax rates and Payroll Giving
- 05:21 – Donating land, property or shares
- 06:03 – Income Tax and Capital Gains Tax relief
- 06:23 – Selling assets on behalf of a charity
- 07:02 – Payroll Giving and National Insurance
- 07:33 – Inheritance Tax and charitable giving
- 07:55 – Gifts in a will and IHT exemption
- 08:23 – The 10% charitable giving test
- 08:42 – Recap of the four methods
- 09:14 – Communicating tax benefits to donors
Related episodes and guides
Key takeaway
Tax-effective charitable giving gives us more than one route for supporting good causes.
Gift Aid can increase a qualifying cash donation. Payroll Giving gives Income Tax relief directly through wages or a pension. Qualifying gifts of land, property or shares can attract Income Tax and Capital Gains Tax relief. A charitable gift in your will can be exempt from Inheritance Tax and may also reduce the IHT rate on the qualifying part of your estate.
The right method depends on what you are giving and your own tax circumstances.
Choose the charity first, then make sure the method of giving allows both you and the charity to use the reliefs that are genuinely available.
Further Support
If you want help understanding the tax consequences of charitable giving, or you run a charity and want to explain these options clearly to donors, you can contact us for an initial chat.
We also help charities and social enterprises with accounts, tax, budgeting, financial planning and stronger financial systems.
You can use our free online business calculators to support your wider financial planning.
For more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.
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