George Bull

Written by: George Bull

George Bull

Senior Tax Partner

HMRC – the gift that keeps on giving!

If earlier years are anything to go by, charitable giving in the UK will peak in November and December.

Year by year, people are replacing more conventional Christmas gifts with charity gifts. Instead of unpacking a brightly wrapped parcel, on Christmas Day the recipient will receive a card or certificate telling them that someone has made a charitable donation on their behalf. That doesn't float everybody's boat, but HMRC can bring a little magic of their own through the gift aid scheme.

Gift aid increases the value to the charity of qualifying donations by 25 per cent. For every pound you give, the charity can collect an extra 25p from the taxman. Provided you pay enough income tax or capital gains tax to cover the amount which the charity will reclaim, all you have to do is to sign a short declaration and the charity will do the rest.

It gets better… if you pay income tax above the basic rate, you can claim the difference between the rate you pay and the basic rate on your donation. It's the same wherever you live in the UK. You can make this claim through your annual self-assessment tax return, or by asking HMRC to amend your tax code. A quick example shows how it works. If you donate £100 to a charity, they claim £25 gift aid back from the taxman, bringing your total donation to £125. If you pay 40 per cent tax, you can personally claim back a further £25 (£125 x 20 per cent).

And better still… for the highest earners gift aid can alleviate the problem that the personal allowance of £11,850 is reduced by £1 for every £2 of taxable income over £100,000. This means that people with taxable income in the band £100,000-£123,700 suffer an effective tax rate of 60 per cent on that slice of income (or even 61.5 per cent in Scotland where the figures are slightly different). Gift aid can be used to reduce the tax exposure. In some circumstances, those payments may fully restore the personal allowance – a little generosity may go a long way, but you must claim the relief from the taxman. 

But what if you don't buy charity gifts? Can the taxman do anything to sprinkle the glitter of charitable donations over your present-buying? He can! Websites such as Give As You Live mean that everything from special gifts through to everyday shopping bought from your favourite participating store will secure a donation from the store which the website transmits to your chosen charity. What's not to like?

For the really generous gifts, whether in the form of money or assets, inheritance tax and even capital gains tax may be relevant. Those gifts are best made after careful deliberation supported perhaps by professional advice. With only a few shopping days left to Christmas, it's a bit too late for those. But hopefully these practical gift aid tips will provide a warm glow for friends and family on behalf of whom you buy charitable gifts, for the charities and their beneficiaries and, of course, from HMRC who are not half as hard-hearted as they are sometimes made out to be.

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