Tax-efficient donations are the fastest-growing form of income, according to CAF’s annual report, Charity Trends, which was released today.

An increase in the number of people taking advantage of incentives such as Gift Aid and Payroll Giving has resulted in the value of tax-efficient donations totalling £2.4 billion gross - a rise of 18% since last year. Add these figures to the amount donated via share giving and inheritance, and it is estimated that giving in 2003 cost the Government £1.1 billion in tax relief.

Despite the considerable improvement in tax-efficient giving, it still only contributes to one-third of overall donations - something CAF believes charities should take notice of. "Charities would be well-advised to invest in further fundraising by all tax-efficient methods", says the report.

The report, which looks at the income and expenditure of the top 500 charities and long-term trend data for the top 1000 charities, also shows improvement in other areas, including an increase in the income generated by fundraising events, the National Lottery and grants.

Overall, the top 1000 charities’ voluntary income grew by 13%, the highest increase in five years. For the top 500 charities, this culminated in a total of £4.6 billion - 53% of their total income of £8.6 billion.

Cathy Pharoah, director of research at CAF says the findings are encouraging but reminds charities that there is more work to be done. "Income from fundraising events, donations and grants showed very healthy increases," she says. "However, charity income continues to be dogged by year-on-year fluctuations and charities need to invest in strategies for developing longer-term sustainable incomes."

Charity Trends 25th Edition is available from CaritasData Ltd, priced £270 or £135 for charities. Call 020 7566 8210 for details.