How supporting charities this Christmas could help you manage your tax liability

Christmas is a time for giving, whether to your loved ones or to important charitable causes.

Research shows that the festive period is crucial for charities, which often receive increased donations at this time. According to UK Fundraising, a 2023 survey revealed that 42% of people said they were more likely to give money at Christmas than any other time of year.

You might be planning to donate this Christmas. What you may not realise is that charitable gifts can not only support a cause close to your heart but also help mitigate Inheritance Tax (IHT) and Income Tax.

Read on to learn how giving money to charity could help you manage your tax liability.

All gifts to qualifying organisations are immediately exempt from Inheritance Tax

If you are concerned about the IHT your family could pay when you pass away, we can help you find ways to reduce the liability of your estate.

Gifting wealth is a key strategy we might recommend. Certain gifts to individuals will only fall outside your estate after a set period. In comparison, any wealth you gift to a charity or other qualifying organisation immediately falls outside your estate for IHT purposes.

Charities

Typically, the charities you donate to must be UK-registered for you to benefit from this IHT exemption. Previously, many charities in the European Union were eligible for the same exemptions, but since Brexit this is no longer the case. Certain overseas charities may still qualify, but only if they have specifically applied to HMRC.

Political parties

You may also be able to make tax-efficient gifts to registered political parties. However, if the gift is to be IHT-free, the party must have had at least two MPs elected at the last general election. Alternatively, if the party had one MP elected and received at least 150,000 votes nationwide, they would also qualify.

Community amateur sports clubs

Certain sports organisations are treated in the same way as charities or political parties. However, they must be considered community amateur sports clubs (CASCs). To receive CASC status, a club must:

Be open to the whole community
Operate on an amateur basis without members receiving payment
Be properly registered with HMRC.

Other public organisations

You can also make IHT-free gifts to public organisations, including:

Universities and other publicly funded educational organisations
The National Trust
Museums.

Gifting wealth to any of these charities or organisations – either during your life or by leaving a gift in your will – could reduce the size of your taxable estate. As a result, your family may pay less IHT when you pass away.

Bear in mind that if an organisation doesn’t meet the criteria, your gift won’t automatically fall outside your estate. That’s why it’s important to seek professional guidance to ensure your charitable donations are tax-efficient.

Your family could pay a lower rate of Inheritance Tax if you leave at least 10% of your estate to charity in your will

Lifetime gifting could be an effective way to reduce the size of your taxable estate, but you may also leave a portion of your wealth to charity in a will. Doing so could reduce the rate at which your beneficiaries pay IHT.

If you leave at least 10% of your net estate – the total value of your estate minus debts and other IHT exemptions – to charity in your will, then your beneficiaries pay IHT at a reduced rate of 36% instead of 40%.

In some cases, this could mean your loved ones inherit more from your estate. However, if the amount you leave to charity exceeds the IHT saving, your beneficiaries may receive less overall.

We can help you calculate the most tax-efficient way to leave wealth to charity while also taking care of your loved ones when you’re gone.

Gift Aid could mean you pay less Income Tax when donating to charity

Donating to charity while alive and leaving gifts in your will could be an effective way of reducing the IHT your beneficiaries pay. If you’re a higher- or additional-rate taxpayer, donations could also reduce the amount of Income Tax you pay.

You can achieve this by using the Gift Aid scheme. This allows charities and other qualifying organisations to claim tax relief on your donations.

For example, if you were to donate £1,000, the charity would automatically receive 20% tax relief. In practice, this means the total donation would be £1,250, with £250 – 20% of the full amount – paid as tax relief.

However, if you are a higher- or additional-rate taxpayer, you can claim an extra 20% or 25% tax relief through self-assessment to bring the total relief in line with your marginal rate of Income Tax.

So, if you’re a higher-rate taxpayer donating £1,000, the charity benefits from £250 tax relief, and you can also claim another £250 for yourself. Meanwhile, an additional-rate taxpayer would receive £312.50.

Taking advantage of this rule could mean you effectively pay less Income Tax.

Get in touch

If you plan to donate to charity this Christmas, we can help you understand the potential tax benefits.

Please contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2025 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

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, or will writing.