A lot of kind-hearted folk in the UK give to some charity or another. In fact, as Brits we’re getting more charitable. Charities Aid Foundation found that 89% of respondents in its 2017 annual survey participated in some kind of charitable or social action in the last year, up from 79% in 2016.
So well done, Brits!
But did you know you can claim tax-relief (ie getting reimbursed by the taxman) when giving to charitable causes? And that, through the mechanism called Gift Aid, the charity can claim an added 25% from the government – making your donation go even further?
The tax (reclaimable later, don’t forget) on donations to charity or to community amateur sports clubs (CASCs) goes to you or the charity, depending on whether the donation is:
- through Gift Aid
- debited from wages or your pension
- Assets – land, property or shares
- in a Will
Limited companies – not however, sole traders and partnerships – have slightly different rules, and also get a few quid knocked off their corporation tax within a tax year. If this is you, get on this relevant page of the GOV.UK website to see how to give efficiently.
So, what is Gift Aid?
Gift Aid allows a charity to claim the extra 25p on each quid donated, providing they’re a recognised charity or sports club. The type of contribution determines whether such a group can make a claim: for example, they can claim for charitable membership fees, specific charity events, charity auctions and volunteer expenses but can’t claim when the gift comes from a limited company or Payroll Giving (ie, through wages or pensions).
So it’s important that the charity knows in which areas it can and can’t claim if you’re trying to make a Gift Aid donation.
As a donor looking to give through Gift Aid, you must make sure that you have paid the same amount or more in income tax or capital gains tax (CGT) in that tax year, and then make a Gift Aid declaration for the charity to claim, through filling in a form.
The donations can’t be more than four times what you have paid in tax in that tax year (6 April to 5 April), or that the tax could have been paid on income or capital gains. If you’ve stopped paying tax, you must flag this up to the charity.
Keep a detailed spreadsheet of your donations so you can take them off the total income tax you will pay, particularly as you can include all donations from the last four years. Tell the charity about any tax years where you didn’t pay enough tax.
Getting tax relief sooner
In your Self Assessment tax return, you normally only report things from the previous tax year. But for Gift Aid, you can also claim tax relief on donations you make in the current tax year (up to the date you send your return) if you either want tax relief sooner, or you won’t pay higher rate tax in current year, but you did in the previous year.
You can’t do this if you miss the deadline – which is 31 January for online filings – or if your donations don’t qualify for Gift Aid; your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year.
Donating straight from your wages or pension
If your employer or personal pension provider runs a Payroll Giving scheme, you can donate straight from your wages or pension.This happens before tax is deducted from your income. You can’t donate to a CASC through this method, however.
The tax relief depends on your tax band. GOV.UK has the following rules regarding a £1 donation:
- 80p if you’re a lower rate taxpayer
- 60p if you’re a higher rate taxpayer
- 55p if you’re an additional rate taxpayer
You don’t have to pay tax on land, property or shares you donate to charity. This includes selling them for less than their market value.
Income tax and Capital Gains Tax (CGT)
You can pay less income tax by deducting whatever was donated from your total taxable income. Do this for the tax year (6 April to 5 April) in which you made the gift or sale to charity. Remember, you can claim relief from CASCs.
Land, property or shares given to charities are generally exempt from CGT. However, gov.uk advises that you may have to pay if you sell them for more than they cost you but less than their market value.
Claiming it back
If you complete a Self Assessment tax return, add the amount you’re claiming in the ‘Charitable giving’ section of the form. This will reduce your Self Assessment bill.
If you don’t complete a tax return, write to HMRC with details of the gift or sale and your tax relief amount. You’ll either get a refund, or your tax code will be changed so you pay less Income Tax for that tax year.
Selling land, property or shares on behalf of a charity
When you offer a gift of land, property or shares, the charity may ask you to sell the gift on its behalf. You can do this and still claim tax relief for the donation, but you must keep records of the gift and the charity’s request. Without them, you might have to pay CGT.
Charitable giving in your Will
Donating to charities in your Will reduces the inheritance tax (IHT) applied to the estate, either by the donation reducing the value of your estate before IHT is calculated, or bringing down the IHT rate if more than 10% of your estate is left to charity.
Look at charitable giving as part of your bigger financial picture – and there your advisor will make a good sounding board. There’s ways going begging of giving smartly with big tax breaks, so don’t miss out.