Donations to charities are a recognised way to support good causes while also helping certain taxpayers reduce their tax bill. But many people wonder: are charitable donations taxable? The good news is, while donations themselves are not taxable, they can impact your tax position in positive ways if recorded and claimed correctly. In order to ensure you are getting the benefit, you should properly maintain a record of all donations to charities to support any claims that appear on your tax return.
Gift Aid & Tax Relief
Donations made through the Gift Aid scheme allow the recipient charity to claim 25p worth of tax relief on every pound donated. At the same time, higher rate and additional rate taxpayers can claim relief on the difference between the basic rate and their highest rate of tax. This means that, in the context of tax and charity donations, Gift Aid provides advantages for both the donor and the charity.
Example:
If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can then claim additional tax back of:
- £125 if they pay tax at the higher rate of 40% (£625 x 20%)
- £156.25 if they pay tax at the additional rate of 45% (625 x 20% plus £625 x 5%)
This shows how taxable charity donations can work in practice – although the donation itself isn’t taxed, it does reduce the overall bill when claimed properly.
Carry Back Contributions
A higher rate or additional rate taxpayer who wants to reduce their tax bill for 2024-2025 (the last tax year), could decide to make a gift to charity in the current tax year, 2025-26, and then elect to carry back the contribution to the previous year. A request to carry back the donation must be made before, or at the same time, as the 2024-2025 Self Assessment return is filed.
The deadline for filing a return is:
- 31st October 2025 if you file a paper tax return, or
- 31st January 2026 if you file online
This carry back strategy can be particularly useful for higher rate taxpayers, especially those paying tax at excessive marginal rates.
Why It Matters
For example, a taxpayer’s personal allowance is gradually reduced by £1 for every £2 of income over £100,000, irrespective of age. This creates an effective marginal rate of tax of around 60% for taxpayers with annual income between £100,000 and £123,000. In situations like this, understanding tax and charity donations can make a significant difference.
If you are a higher rate taxpayer and wondering are charity donations taxable or how they can affect your finances, this carry back process may be worth considering.
Next Steps
If you find yourself in this situation, you should explore your options carefully. Please call us to discuss whether this carry back process, and the rules around taxable charity donations, could benefit your tax affairs.
