What is Deed of Covenant? UK Definition 2026/27
Quick Answer
A legal commitment to make regular payments, historically used for tax-efficient giving.
Definition of Deed of Covenant
A deed of covenant is a legally binding commitment to make regular payments for a fixed period. Historically used for tax-efficient giving to individuals (especially from parents to adult children), this benefit was largely abolished in 1988 and replaced by Gift Aid for charity donations. Covenants to charities now operate as Gift Aid donations.
Deed of Covenant — Key Facts for 2026/27
| Current use | Limited - mostly historic |
| Charity covenants | Now treated as Gift Aid |
| Individual covenants | No tax benefit since 1988 |
| Still valid for | Some trust arrangements |
How Deed of Covenant Works — Example
- 1Pre-1988: Parent covenants £1,000/year to adult child
- 2Child received: £1,000 plus basic rate tax reclaim
- 3Total to child: ~£1,250
- 4Parent saved: Higher rate relief
- 5Now: No tax benefit for individual covenants
How Deed of Covenant Affects Your Tax
Deeds of covenant to individuals no longer offer tax benefits. For charitable giving, Gift Aid has replaced covenants and provides similar benefits more simply. Some trust arrangements still use covenants for specific purposes.
Official HMRC Guidance on Deed of Covenant
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Donating to charityFrequently Asked Questions about Deed of Covenant
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.