Gift Aid

Gift Aid

This is a valuable relief for gifts to charities: the gift is made out of the donor’s taxed income and the charity benefits by claiming basic rate tax on the value of the gift.
• Higher rate taxpayers can claim extra tax relief of 20% of the gross value of the gift.

• For top rate taxpayers, the extra relief is 25%.

• There is no cap on the amount that can qualify for Gift Aid. Provided the donor has paid sufficient tax during the tax year to cover the charity’s reclaim from HMRC.

 

Example

If you are a higher rate taxpayer and you make an £800 donation to a charity. The gross value of the gift to the charity is £1,000. Since it can claim back the basic rate tax of £200. You can claim an additional 20% tax relief on the gross value, reducing the net cost to £600.
In order for a donation to qualify for tax relief, the charity previously had to be located in an EU member state (plus Iceland, Norway and Liechtenstein) and be recognised as a qualifying charity by HMRC. However, as part of the post-Brexit changes to tax legislation in the UK, this is now changing. The ability to have a non-UK charity qualify has been removed. There is a transitional period though, so that a non-UK charity which had asserted its status before 15 March 2023 will continue to qualify until 1 April 2024 (for company donations) or 5 April 2024 (for individual donations). After that, no relief will be available where donations are made to non-UK charities. This will be the case
• HMRC can challenge some of these methods if they think the transfer is not genuine. Always take tax advice to be sure that your plan will work.
• If you have children, it may be possible to switch income from one spouse to the other (as discussed above), so that both spouses’ incomes remain below the £50,000 threshold for the High-Income Child Benefit Charge (HICBC). Even if those overseas charities have UK activities. Note that UK charities that carry out work in other countries continue to qualify for tax reliefs such as Gift Aid.

Planning points

You must provide the charity with a Gift Aid declaration, so that both parties can claim the relevant tax relief.
• You can elect for donations made in one tax year to be treated for tax purposes as made in the prior year.
• This would be of benefit, for example, if you are a higher or top rate taxpayer in 2022/23 but not in 2023/24. In other cases, it will merely accelerate the higher or top rate relief.
• The election can only be made when submitting your tax return, which must be filed on time.
• Donating assets (eg shares, land and property) to charity while you are alive can also attract income tax relief. Additionally:
• any gain arising on the donation of such assets is exempt from CGT; and

• the gift itself is not subject to Inheritance Tax (IHT), even if the donor dies within seven years.

If you are considering a gift to charity, we can make sure that it will meet the qualifying requirements. It will be particularly tax-efficient if the gross donation reduces income that would otherwise be subject to PA abatement or the HICBC.

More from the newsletter can be found here