Tax Relief When You Donate Assets to Charity

Donating assets like property, land or shares to charity can give you valuable tax relief, helping you avoid Capital Gains Tax entirely and potentially reducing your Income Tax bill too. This makes charitable donations of assets significantly more tax-efficient than simply selling them and donating the cash. Here's what you need to know about how it works.

What counts as a qualifying donation

You can donate land, property or shares to a registered charity and claim tax relief. This includes giving assets away for free or selling them to a charity for less than their market value (the price you'd expect to get if you sold them on the open market).

The asset must go to a registered charity with an HMRC charity reference number. Community amateur sports clubs (CASCs) do not qualify for this type of donation — you can only claim Income Tax and Capital Gains Tax relief when donating assets to charities.

Capital Gains Tax relief

When you donate qualifying assets to charity, you pay no Capital Gains Tax on the disposal. This applies whether you give the asset away completely free or sell it to the charity for less than it's worth.

Normally, when you dispose of an asset, you'd calculate any gain you've made and potentially pay Capital Gains Tax on it. But gifts to charity are exempt from this tax entirely.

This is particularly valuable if you're sitting on assets that have increased significantly in value since you acquired them. Instead of selling them (which would trigger a Capital Gains Tax bill) and donating the proceeds, you can donate the asset directly and avoid the tax altogether.

Income Tax relief

On top of avoiding Capital Gains Tax, you can also reduce your Income Tax bill when you donate assets to charity.

You do this by deducting the value of your donation from your total taxable income for the tax year in which you made the gift or sale (tax years run from 6 April to 5 April).

The value you can deduct depends on what you gave:

• If you donated the asset for free, the value is the market value of the asset
• If you sold it to the charity for less than market value, the value is the market value minus what the charity paid you

How to claim Income Tax relief

If you complete a Self Assessment tax return, add the amount you're claiming in the 'Charitable giving' section. This reduces your Self Assessment bill.

If you don't complete a tax return, contact HMRC with details of the gift or sale and they can adjust your tax code to give you relief.

Keeping records

You must keep records that prove you've made the donation and that the charity has accepted it. Keep documentation that shows:

• What you donated (property deeds, share certificates, etc.)
• The date of the donation
• The charity's acceptance of the gift
• The market value of the asset at the time of donation
• Any payment the charity made to you (if you sold it for less than market value)

Keep these records in case HMRC asks to see them. They support your claim for both Capital Gains Tax exemption and Income Tax relief.

Calculating the value of your donation

To claim Income Tax relief, you need to work out the market value of what you donated. Market value means the price the asset would fetch if sold on the open market at the time you made the gift.

For property and land, you may need a professional valuation. For shares listed on a stock exchange, you can use the quoted price on the date of the donation.

If you sold the asset to the charity for less than market value, subtract what the charity paid you from the market value — the difference is your deductible amount.

Sole traders and partnerships

If you're a sole trader or in a partnership, these rules apply to you in the same way they apply to individuals. You claim the relief through your personal tax return.

This is different from limited companies, which have separate rules for charitable donations.

Example scenario

Say you own shares worth £50,000 that you originally bought for £10,000. If you sold them, you'd make a gain of £40,000, which could result in a significant Capital Gains Tax bill (after deducting your annual exempt amount).

Instead, you donate the shares directly to a registered charity. You pay no Capital Gains Tax on the disposal. You can also deduct £50,000 from your taxable income for that tax year, which reduces your Income Tax bill.

If you're a higher-rate taxpayer (paying 40%), the Income Tax relief alone could be worth £20,000 (40% of £50,000). Combined with the Capital Gains Tax you've avoided, the total tax saving makes this a highly efficient way to support charity.

What this doesn't cover

These rules specifically cover donations of land, property and shares. Cash donations work differently — they usually qualify for Gift Aid, where the charity claims back 25p for every £1 you give, and higher-rate taxpayers can claim additional relief.

If you're considering donating other types of assets (such as valuable artworks or other possessions), different rules may apply, so check with your accountant first.

Sources

• Tax relief when you donate to a charity

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.