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Personal and Tax Planning
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If I give to charity what does the government add to my contribution?
I've heard that for every £780 I give to charity, the Inland Revenue will add £220, and I'll get higher rate tax relief. Surely that's too good to be true?
No, indeed. If you are a 40% taxpayer, giving £780 to a charity will mean you receive £180 of higher rate tax relief in addition to the basic rate tax the charity will reclaim. That means that a £1,000 gift to charity costs you only £600, net.
You obtain higher rate tax relief via your self assessment tax return, so it is important to keep records, especially receipts and copies of Gift Aid declarations to support your claim.
Gifts to charity need not be made in cash. Instead, consider gifting shares. A gift of shares worth £1,000 will net you 40% income tax relief, and any gain on the disposal of the shares will be exempt from capital gains tax - a double saving, compared with making a gift of £1,000 from the sale of shares.
My mum pays a small amount of tax - because her income is mostly from savings she pays tax at only 10% and 20%. Can she still make tax-efficient donations?
Even if your mother pays tax at only 10%, so long as she pays enough income tax and capital gains tax in total to match the 22% basic rate tax the charity will recover, there is no problem. If your mother will not pay enough tax, she needs to reconsider - if she makes payments under Gift Aid, she will be asked to make up the difference between her personal liability and the amount the charity will recover, but she could also make donations outside Gift Aid.
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