As well as providing a benefit to the charity or Community Amateur Sports Club (CASC) of your choice, donations under the Gift Aid scheme can provide a useful planning tool for donors.
Payments under Gift Aid impact the calculation of your taxable income. This means they have the potential to keep income under key thresholds:
High-Income Child Benefit Charge (HICBC). For HICBC, clawback of Child Benefit payment begins when the couple has income over £50,000.
Abatement of the personal allowance. If someone has adjusted net income more than £100,000, the personal allowance is tapered, and lost at the rate of £1 for every £2 over £100,000. If adjusted net income is £125,140 or more, the personal allowance is nil.
Additional rate threshold in England, Wales and Northern Ireland: additional rate is charged on income over £125,140.
Top rate threshold in Scotland: Top rate is charged on income over £125,140. From 6 April 2024, there will also be an Advanced rate of tax in Scotland, charged on income over £75,000 to £125,140.
Where income is close to any of these limits, a payment under Gift Aid could be very tax-efficient.
A carryback election can be made, meaning Gift Aid donations are treated as if made in the previous tax year. This can be of benefit where, for example, income is uneven; if perhaps you paid tax at a higher rate in the previous year.
But there are strict time limits and procedures. A claim must be made on or before the date that the tax return for the previous year is filed; and not later than 31 January in the tax year that the gift was made. The claim must be made in the tax return: it cannot be made in an amended return. This means that the chance to make a carryback election is lost once a return is filed.
Getting the tax relief right on charitable giving can be complex. We should be happy to advise further, especially where a carryback election may be of benefit.
As part of the post-Brexit rearrangements, the government announced in the Spring Budget 2023 that tax reliefs and exemptions for charities were to be restricted to UK charities and CASCs. EU and European Economic Area (EEA) charities registered with HMRC for tax reliefs and exemptions at that date, however, have had a transitional period in which to continue claiming relief. This ends on 5 April 2024. The move means that money from UK taxpayers is used to support UK charities only. If you have previously supported charities in the EU or EEA, or perhaps have made provision for such a charity in the terms of your will, the position may need reassessing.
Higher rate relief goes unclaimed by many donors. A repayment claim is made either via the self assessment tax return, or by asking HMRC to amend the tax code.
To make a claim, there should be a valid Gift Aid declaration in place for all gifts made. To back up the claim, appropriate records should be kept. These should comprise the date; amount of each gift; and the name of the recipient charity.
Did you know that if you pay tax at more than basic rate, a payment under Gift Aid should result in a tax refund?
This is because you are entitled to tax relief at your top rate of tax on the donation. This means you get the difference between the basic rate tax paid on the donation, and higher rate tax on the donation.
Getting the tax relief right on charitable giving can be complex. We should be happy to advise further, especially where a carry back election may be of benefit.
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