Tax Relief on Charitable Gifts Explained

How you can claim tax relief on charitable gifts – made simple!
There are several ways an individual can claim tax relief on gifts to charity:
  • Gift aid donations – there’s no limit to the tax relief that can be claimed for donations of cash.
  • Deeds of covenant – the same rules apply as for the gift aid scheme.
  • Payroll giving – employees have charitable donations taken directly from their pay before calculating PAYE. They are limited only by the amount of earnings they have.
  • Non-cash gifts – this covers anything from shares to freehold property – individuals can obtain income tax relief for the value of such charitable gifts (for capital gains tax the gift is treated as no gain or loss if nothing has been received from the charity).

The individual will only get a tax benefit if they pay tax at higher rates.

Charitable Gifts Example

A higher rate taxpayer makes a gift aid donation of £160, HMRC treats this as a gross payment of £200 (i.e. £200 less basic rate tax relief at 20% equals a net donation of £160). The payer can claim higher rate tax relief of 20% of the gross donation (i.e. 40% – 20% basic rate effectively given by paying the donation net) and so get a credit of £40 against their tax bill. If the taxpayer paid additional rate (i.e. 45%) tax they would get a credit of £50 if the donation was £160, as in this example.

Gift aid payments – terms and conditions of gift aid relief:

  • Individuals who give to UK charities and community amateur sports clubs in EU countries, including Norway and Iceland, receive tax relief by deducting basic income tax (20%) from their payments. For example, a payment to charity of £80 is treated as a donation of £100 less 20% tax. Those who pay higher and additional rate tax can claim further relief in the form of a reduction in their tax bill.
  • Companies must make charitable gifts without the deduction of tax. They receive relief as a reduction in their corporation tax bill.
  • Tax relief is also available to individuals and companies for charitable gifts of real property, shares and securities to charities.
  • Relief for gift aid payments can be claimed for the year prior to that in which the gift is made as long as the “carry back” is claimed in the self-assessment tax return for the earlier of the two years concerned (provided it is submitted before the filing deadline).
  • Tax relief is lost where the donor receives a benefit from the charity etc. exceeding the following financial values:
Total donation made
Maximum total value of permitted benefits
£0-£100
25% of total donataions
£101 – £1000
£25
£1,001+
5% of total donations*
*Subject to a limit of £2,500.

We have created several posts surrounding Tax Rates for further reading here.

For more information, we provide a Business Consultation to ensure our clients benefits from tax planning and accounting matters.

There is a Charity Donations Tax Relief guide here.

For any assistance contact Companies999, we will be happy to help you!

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