Charitable Gifts

Tax relief is available on the gift of cash or assets to charity. This blog is mainly concerned with making lifetime gifts of cash under the gift aid scheme, but the other ways of making gifts are as follows:

Gifts of assets

An income tax deduction can be claimed on a gift of land, property or UK quoted shares (including AIM shares) to charity. The value of the asset gifted is deducted from total income (but not gains) in the annual income tax computation. There is no charge to capital gains tax on the gift.

Payroll giving

If an employer (or pension provider) operates a payroll giving scheme, a donation can be made from wages (or pension) before income tax is deducted.

Gifts in a will

A provision may be included in a will to include the gift of a fixed cash sum, a particular item or of what remains in an estate after other legacies or gifts. The donation is deducted from the value of the estate before inheritance tax is calculated, and when 10% or more of an estate is left to charity a reduced rate of inheritance tax is payable.

Gift Aid

Relief is provided for cash gifts (recurring or one-off) under the gift aid scheme. The government increases the value of the amount received and the charity can claim an extra 25p for every £1 that is gifted.

No additional tax relief is due to basic rate taxpayers. Higher or additional rate taxpayers get full relief and will see a reduction in their income tax liability. On a gift of £100, the tax liability would reduce by £20.

The tax relief due on gift aid donations can be obtained through an adjustment to a tax code or by completing a tax return. If relief is being claimed through the tax code it is important to advise HMRC of any changes to annual donations made. HMRC will need to be advised in writing when a donation of more than £5,000 is made.

Gift aid donations can have a role to play in income tax planning by reducing an individual’s marginal rate of income tax.

Gift Aid and the personal allowance

An individual’s personal allowance is reduced by £1 for every £2 of income in excess of £100,000. When income is more than £125,140, the personal allowance is reduced fully.

However, if a gift aid donation is made, the gross donation is deducted in determining ‘adjusted net income’, which could mean that the personal allowance is restored in full or in part.

Gift Aid and carry back

An election can be made when completing a tax return to treat a donation made in the current year as having been made in the previous year. So relief could be claimed on a 2023/2024 tax return for a gift aid donation made in the current tax year. The carry back could extend the basic (and higher) rate bands for 2023/24 or reduce any tapering of the 2023/24 personal allowance.

It is important to note that the donation (and election) must be made before 31 January in the tax year in which the gift was made. The election also needs to be made on an original tax return, so an amended tax return cannot be submitted to include the claim.

Please get in touch if you have any queries about the tax implications of making gifts to charity.