As an individual taxpayer, you can claim relief on donations you make to both UK registered charities and also those registered in the European Economic area.
Relief can be claimed on cash donations made via the Gift Aid scheme but there is also the ability to gift quoted shares and land to a charity and claim a deduction against income.
Gift Aid Donations
When making a donation to a charity, be it online or in person at events or venues, you will often be asked whether you wish to make a Gift Aid declaration.
This declaration is beneficial both for yourself as a taxpayer and also the charity as it allows them to claim an extra 25% back from HMRC. For example, should you make a donation of £800 the charity can claim £200 back from HMRC meaning the total received by the charity would be £1,000.
For additional and higher rate taxpayers, an adjustment is then made to extend your basic and higher rate limits by the amount of the gross donations.
For example, an actual donation of £800 would be grossed up to £1,000 and this is the amount that your basic and higher rate bands would be extended by. As such, more income would be taxed at the lower rates of tax.
As well as extending tax bands, Gift Aid donations are also used when calculating a taxpayer’s NET income when looking at any restriction of the personal allowance (which occurs where NET income is over £100,000), tax free childcare and the High Income Child Benefit Charge thresholds. The calculation is as follows:
| £ | |
|---|---|
| Actual NET income | X |
| Less: Gross donation | (X) |
| Adjusted NET income | X |
Finally, an election can also be made for Gift Aid donations to be treated as having been made in the previous tax year. This can be done provided the donation is made no later than 31 January and your tax return for the relevant tax has not yet been submitted. For example, for a donation to be carried back to the 2023/24 tax year the donation must be made by 31 January 2025, assuming the tax return for the 2023/24 tax year is submitted on 31 January.
This could be a beneficial planning point if your income is just over certain thresholds in a tax year and you wish to mitigate the tax impact.
Gifts of Quoted Shares and Land
If you give shares quoted on a recognised stock exchange, e.g. LSE or AIM, to a UK or EEA registered charity, the value of the shares at the date of the gift is treated as a deductible payment in your income tax computation.
For example, if you have £100,000 of income for a tax year and in that tax year gift £20,000 worth of shares to a charity, your taxable income for the year will be reduced to £80,000. The same principle applies to gifts of land and buildings.
The gift of shares would also be an exempt disposal for Capital Gains Tax purposes.
Adam Smith is Private Client Senior Tax Accountant and is happy to chat through your individual circumstances, get in touch by email to tax@randall-payne.co.uk or call 01242 776000.
