Timing of charitable donations: cash vs. shares

For clients making regular, material gifts, an important planning question is not only the form of the donation, but also its timing relative to annual income.

Where annual income is £200,000, donating £1 million in a single tax year is often significantly less efficient than making gifts over multiple tax years. This is because charitable relief is fundamentally constrained by income, and unused relief cannot be carried forward.

Under Gift Aid, if the grossed-up donation substantially exceeds the donor’s income tax liability for the year, bearing in mind the relief for extensions of tax bands, the donor may be required to pay additional tax to cover the charity’s basic rate reclaim.

Similarly, where shares or other qualifying securities are donated, income tax relief is limited to total income for the year, meaning that any excess gift value simply does not generate relief. In this context, making gifts in line with income is critical to avoiding wasted relief.

Assume an individual has annual income of £200,000 and wishes to make charitable gifts broadly in line with that income over time.

One year vs five years: why timing matters

Consider a total intended donation of £1 million:

£1 million donated in a single tax year where income is £200,000 Relief (whether via Gift Aid or share donations) is capped by that year’s income. Under Gift Aid, the charity claims an additional £250,000 of relief which will be far greater than the tax due on £200,000 income, thus triggering an additional tax charge on the donor on the surplus. For share donations, income tax relief is available only up to £200,000, meaning £800,000 of potential relief is lost.

£200,000 donated over five tax years Each year’s donation is aligned with income. Relief is fully utilised in each year. Potentially no Gift Aid reclaim arises, and no share donation relief is wasted.

The same total philanthropy can therefore produce materially different tax outcomes depending on timing, lets break it down.

Gifting cash (via Gift Aid)

If £200,000 is donated in cash under Gift Aid:

• The charity receives £200,000 and reclaims £50,000 from HMRC (the basic rate element), so the gross gift is £250,000.
• For the donor, the gross gift extends the basic rate band and reduces adjusted net income.
• Higher and additional rate relief is obtained through self-assessment

While this is highly tax-efficient, the mechanics matter:

• The donor still has £200,000 of taxable income, with relief delivered through band extension and tax repayments rather than a direct offset.
• If the basic rate tax reclaimed by the charity exceeds the donor’s income tax liability for the year, the donor must make good the difference to HMRC, effectively increasing the overall cash cost of the gift.

Gifting shares or other qualifying securities

By contrast, if the individual donates £200,000 of quoted shares directly to charity:

• The full market value of the shares is deducted from total income before the calculation of tax.
• Taxable income is effectively reduced from £200,000 to nil.
• No income tax liability arises in respect of that income.
• There is also no capital gains tax on the disposal of the shares.

In other words, the relief operates as a direct deduction from income, rather than a post-calculation adjustment to tax bands.

Why this distinction matters

For High-Net-Worth individuals making large, recurring gifts:

• Cash gifts deliver relief through a more complex mechanism, can leave residual tax liabilities during the year
• Gifts of shares provide a cleaner outcome: income is directly matched with philanthropy, and tax exposure is eliminated.

When gifts are intentionally aligned with income, particularly at higher or additional rates, donating shares can be materially more efficient and administratively simpler than gifting cash, while also ensuring that valuable charitable relief is not wasted through poor timing.