Light in the self-assessment tunnel
Every year as the self-assessment deadline approaches, many people rush to find an advisor or accountant with space to help them through the perceived slog that is the annual tax return. If, however, you are completing your own self-assessment, you may not be aware of some ways in which charitable donations can help you to bring your tax bill down.
Gift Aid tax relief
Perhaps the best-known tax relief option on donations is Gift Aid. If you are a basic rate taxpayer, adding Gift Aid to your donations means that HMRC rebates your income tax. However, the rebate is given to the charity, instead of going to you, effectively increasing the value of your donation by approximately 25%.
If you are a higher rate taxpayer, the details are a little more complicated. In the simplest terms, you can claim the difference between the rate you pay, and the basic rate paid on the donation. For example, if you Gift Aid a £1,000 donation, the charity will receive £1,250 (£1,000 plus 25%), and you can personally claim back £250 of tax (£1,250 x 20%).
For a more detailed explanation of how this works, you can read the government advice online.
You can claim this money back for the current tax year, rather than waiting until you submit your self-assessment.
Payroll Giving is an extremely tax-efficient way of giving to charity. By donating in this way, your donation to charity is taken off your pay before your tax is calculated. Put simply, this means that you pay less than £1 to make a £1 donation.
As an example, if you were to choose to give £10 per month to GCF, the charity would receive £120 for the year. The cost of this donation to you would be:
Basic rate taxpayer: £96
Higher rate taxpayer: £72
Additional rate taxpayer: £66
So, if you’re a higher rate taxpayer, for example, and you want to give £1,000 to GCF, through Payroll Giving this would cost you just £600.
Land, property, or shares
When people think about donating to charity, they usually think about straightforward cash donations. However, charities like GCF can benefit enormously from the donation of land, property, or shares.
When you donate in this way, you can claim relief on both income tax and capital gains tax.
Income tax: if you choose to donate land, property, or shares, you can deduct the value of your donation from your total taxable income for the year. You can do this either through your self-assessment, or by writing to HMRC. If you sell these to charity at a reduced rate (below market value) you can also claim the difference as a deduction from your total taxable income.
Capital gains tax: you do not have to pay capital gains tax on any land, property, or shares you donate to charity. This also applies if you sell on behalf of a charity – if you do this, make sure to keep very thorough records of the sale and donation to give to HMRC as evidence.
Gifts in Wills are slightly different from the other methods of donations listed here because the donor will not personally receive any tax relief. However, if you are thinking of leaving a gift in your Will, this can be a lovely way to leave a legacy at the end of your life.
Legacy giving can also reduce the inheritance tax bill for your loved ones. This can happen in one of two ways: either the donation is taken before inheritance tax is calculated, or, if the gift is more than 10% of your estate, the tax rate paid is reduced.
For more information about legacy giving, and how this will affect those to whom you choose to leave your estate, you can visit the government website.
At GCF, it is important to us that you can give in whatever way feels most appropriate for you. Please get in touch with us if you would like to have a discussion about how to make a donation or would like to know more about offsetting donations against your tax bill.