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:

1. Gift Aid on qualifying cash donations.
2. Payroll Giving through wages or a pension.
3. Gifts of land, property or shares to charity.
4. 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

1. Choose the cause first. Decide which charity or charities you want to support.
2. Identify what you are giving. Cash, salary, shares, property and a legacy can all have different rules.
3. Check the tax route. Do not assume every charitable payment qualifies for the same relief.
4. Keep the evidence. Gift Aid declarations, payroll records and asset-gift documentation can all matter.
5. Check your own tax position. Your rate of tax and the amount of tax you have actually paid can affect the relief available.
6. Use current HMRC guidance. Tax rates and administrative details can change.
7. 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

• Gift Aid and Charitable Giving
• Gift Aid Tax Relief Explained

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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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.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Typically, there are four main ways in the United Kingdom where tax-effective giving takes place. Last week, we talked about Gift Aid. That was number one. And then followed up, we've got payroll giving the gift of land, property, or shares, or that moment when you pass away and you donate assets via your will

to a charity and has the impact of giving charity much-needed funds as well as reducing your inheritance tax liability as a result. Now, folks, before we dive into those methods, before we look at each one individually, it's worth pointing out. And when you think charity, let's flip it on its head. There are many wonderful organisations out there in the creative field, in the health field, education, community cohesion…

We have hundreds of thousands of charities out there doing good work, which need much fund. So think of it as supporting businesses that do good work not only on a domestic scale but also on an international horizon as well across lots of different sectors, and making gifts supplying funds to those organisations is a vital thing for them to not only sustain but thrive and carry on delivering that benefit. Let's get back to our mechanisms. Now in last week's episode

I talked about gift aids worthwhile revisiting that podcast, check it out. The second method I'm going to do is called payroll giving, now as the name implies this is where you donate regularly through your wages or salaries that can also apply by the way to private pensions. Now, the benefit of making the gift that way is that

A, the charities get regular income. Secondly, it has the impact of reducing your own personal tax liability. I'll demonstrate with a few numbers in a moment. And also, the company, the employer, can discharge their corporate social responsibility. They can also do good things for a charity which is of a local charity or a national charity.

So pretty much everybody who takes part in payroll giving benefits in some way. Let's throw some numbers in your direction. Now before we throw those numbers here, consider your own individual situation. Are you what's called a basic rate taxpayer, where effectively you're paying tax at the 20 percent rate?

Are you a higher rate taxpayer, where you're paying at 20 percent and also you've got income that's being taxed at 40 percent? Or are you an additional rate taxpayer, where on top of the 40 percent rate, you're paying a 45 percent rate as well? The tax saving will increase the higher the rate of tax that you're paying.

The charity receives the same level of money from you. So if you donate 100 pounds and you're a basic rate taxpayer, effectively that regular donation, that money that's going through your payroll, will only cost you 80 pounds. You get 20 pounds knocked off your tax liability, which can't be a bad thing. For that same 100 pounds, it's a 60 pounds effective cost.

You're reducing your tax bill by 40 pounds for every hundred. The charity receives their 100 pounds. And lastly, if you're an additional rate payer, 55 pounds is the effective cost of that payroll giving. Now the mechanism as such, typically you have an outside agency that will collect those contributions from your employer. You, as the employee can decide which charity is the recipient of that regular payment that you're making, and I say regular, by the way, because most people who engage in a payroll giving scheme will be doing it on a regular basis.

You can do it as a one-off. Now, there are 23 listed agencies with HMRC, by the way, who operate and offer that service as payroll agencies. They administer those contributions. You can decide to give to a specific charity, or you and your fellow colleagues may get together and decide that you want to change the recipients there as well.

So you have that flexibility to either designate individual charities or a group of charities. It's your choice. Your firm may have a charity they're actually sponsoring and supporting, which does good work in the locality, or again it may be a national charity itself. Now the rates do differ, by the way, if you live in Scotland, because the tax rates in Scotland are different to the United Kingdom for England and Wales.

So again, the principle is what we're focusing on, the actual mechanics and the numbers, if they're a little bit head-scratching, then drop us a line. Check it out on HMRC and I'll give you the link in the show notes so you can find out who those payroll agencies are, as well as what the rates of tax might be.

So that's method number two. So we talked about gift aid last week, we're talking about payroll giving here. Let's talk about the third one now. And this is where you may decide to donate land, property, or shares to a charity of your choice. Remember, when I say charity, effectively, it's the organisation that's doing good stuff.

Whether it's in the arts and creative sector, whether it's in the field of education, whether it's in the field of community cohesion, international outreach work, relieving poverty, there's a whole list. Now that charity, if it's the recipient on donations of land, property, or shares, when you make that gift, and no money is received, then there's no tax liability.

And you can actually claim income tax relief by deducting the value of that donation from your taxable income. That has the effect of reducing your taxable income and thereby reducing your tax liability as well. If you also gift those assets to a charity, they're made what are called Capital Gains Tax Free or CGT Free.

Now in most cases, by the way, charities would prefer the individual to take care of that burden and make those sales themselves. So, liquidate those assets, generate the cash, and then make the gift accordingly. As long as you've got the records from the charity and yourself, you can still claim the income tax and the capital gains tax relief.

Now, if for any reason you decide to sell those assets and money changes hands in terms of when it goes to the charity, then potentially there's an income tax liability. But most people in that situation will gift those assets, and again, that's going to be beneficial both for income tax and capital gains tax as well.

Now before we look at the last method, and that comes to inheritance tax. So death is going to befall us all at some point in our lives. I want to mention one more point about the payroll giving. Unfortunately, it doesn't relieve any national insurance burdens. It only relieves income tax burdens, which again, can be quite punishing, and if you want to achieve two objectives of giving to a charity, as well as minimising your tax liability and maximising the return for the charity, then it's worthwhile looking at these different mechanisms.

Now, the last one I want to consider is inheritance tax relief. Now, currently the headline rate for inheritance tax is 40 percent, typically chargeable on estates over 325,000. Again, there are a myriad of reliefs and exemptions, family homes, etc. But let's work on that assumption. 40 percent is the headline rate.

Now, two things to bear in mind here: Number one, if in your will you bequeath your assets to a charity? There is no inheritance tax on those assets, so they're gifted IHT free. If, in addition, you give more than 10 percent of your estate to a charity, you leave that in your will, then the rate of inheritance tax drops from 40 percent to a lower 36%.

You've got to give it I said, at least 10 percent on the value of your estate for that to be considered. And again, depending on the magnitude of your estate, a 4 percent IHT saving has got to be worth considering. Again, this has to be executed via a will. And again, the choice is yours about which charities you select.

As long as they're registered in England, Wales, Scotland, Northern Ireland, it will all count. So, folks, I hope you found this useful. Let's just summarise where we are. If you're going to give to a charity and you also want to minimise your own tax liability, and who wouldn't want to, and you also want to maximise the return for a charity, which is essentially a business registered as a charity, then you've got Gift Aid, check out last week's notes and podcast, you've got payroll giving, you've got gifting

land property or shares and then you've got leaving gifts in your will to a charity of your choice. I hope you found this useful. Are you somebody who donates to a charity? If so, I'd like to hear your thoughts on this. Have you found them useful? If you're a charity itself, consider those different mechanisms and make sure that you communicate the benefits out to your donors.

Again, donors won't typically be taking on board tax reliefs when they make those gifts, but they can certainly be an influencing element. Until next time, folks, happy donations. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode.

We look forward to you joining us next week for another I Hate Numbers episode.