Charity Tax Relief

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Charity tax relief

Charity tax relief – Background

It is reported there has been a “steady decline” in the total amount of charitable donations. This is despite the availability of healthy charity tax relief.

This article will focus on precisely what reliefs are available in the UK for the philanthropically minded taxpayer.

The nature of the donation – whether one is gifting cash or assets – will dictate the position for both the person making the donation (the donor) and the charity itself.

Cash donations

This is by far the most common type of charitable donation in the UK is cash.

It is possible for the taxpayer to obtain gift aid on the gift meaning the charity can effectively claim an additional 25% bonus on the donation. This is long as the donor has paid enough income tax and / or capital gains tax to frank the gift.

Where an individual has made this ‘gift aid declaration’ then this has consequences for the tax computation. Here, their basic and higher rate tax bands are extended by the grosscharitable donation. The effect of this is that the proportion of their income taxed at the lower rates is increased.

For a higher rate taxpayer, this tax relief is 25%.

This level of tax relief may be further increased if the individual:

  • Suffers from a reduced personal allowance as their income is in excess of £100,000;
  • They earn more than £150,000.
  • They are subject to the High Income Child Benefit charge

Gift Aid declaration conditions

Perhaps unsurprisingly, the Gift Aid declaration comes with a number of conditions. Four of them to be precise.

These are as follows:

  • The recipient charity must be a registered charity in the UK, the EU, Norway or Iceland;
  • The declaration must be made. This is usually done by completing a written declaration but it can, in theory, be oral;
  • The declaration must include specific details of the donor. This includes their name, address, name of the charity, and a confirmation that the donation should be treated as subject to gift aid; and
  • The donor also needs to confirm they pay enough UK tax such that it can cover the tax to be claimed back by the charity.

Gifts of assets.

Perhaps less well known is the ability to gift assets rather than cash. For example, one could gift shares or even land instead of cash.

A gift on an asset might be more tax efficient where the donor is lacking liquid cash. For example, if one sells an asset to generate the cash then there might be a CGT charge on the sale of the asset.

However, there is a capital gains tax relief (saving up to 20% on most assets and 28% on residential property) on all assets given to a registered charity.

There may be other advantages in going down the direct gift route.

Firstly, one does not need to complete a gift aid declaration for a gift of assets. This is perhaps a minor administrative benefit.

Secondly, in respect of a cash gift, where the gift aid relief claim exceeds the tax paid during the year, it will result in a tax charge. This is not the case for a gift of assets.

Impact on benefits and allowance

As stated above, charitable donations can also have consequential impact on the position for Child Benefit and also the availability of the personal allowance.

The loss of child benefit and the personal allowance is dictated by an individual’s adjusted net income which is calculated as follows:

In addition, for pension purposes, where adjusted net income exceeds £150,000, then the Annual Allowance is tapered away from £40,000 to a minimum of £10,000. However, a charitable gift can increase the amount an individual can contribute into their pension during a tax year.

 

If you have any queries about charity tax relief or any other tax matters then please get in touch.

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