Charity Donations: A guide for higher and additional rate taxpayers
As a higher or additional rate taxpayer in the UK, it’s worth tracking your donations as there may be tax relief available.
How gift aid works
When you donate to a UK-registered charity and tick the Gift Aid box, the charity can claim an extra 25% on your donation from HMRC. For example, if you give £100, the charity receives £125 at no extra cost to you.
As a higher or additional rate taxpayer (earning over £50,270 annually), you’re entitled to claim additional tax relief. While the charity claims back tax at the basic rate (20%), you can claim back the difference between the basic rate and your higher rate (40% or 45%) on your grossed-up donation. This means that £100 donation gives tax relief of £25 for higher rate taxpayers or £31.25 for additional rate taxpayers.
If you donate goods to charity shops you can often log this on your record and they’ll send an email at the end of the tax year telling you how much they’ve sold your items for and therefore your donation amount.
Additional tax benefit
If your total income is between £100,000 and £125,140, this is called the ‘tax trap’ and you’re paying tax at 60% on that portion of your income because the tax-free personal allowance is tapered and reduces by £1 for every £2 of income above £100,000.
Making and claiming gift aid donations can provide tax relief for this. Your £100 donation now provides tax relief of £50.
Tax relief summary
Here is a summary of the tax relief on a donation of £100 where the charity will receive £125.
Benefits of tracking donations
As you can see, depending on your level of income and donations you’re making, it’s likely to be worth tracking your donations and accessing the tax relief. You can track by putting them in a folder on your email app, or using the notes app on your phone, anywhere that you’ll remember where they are when you’re gathering the information for your tax return.
How to claim
You can claim for donations made in the tax year on your tax return for that year. In addition, you can claim for donations made since the year end by carrying the donation back to the prior year. This is particularly efficient if your income is in the tax trap one year but unlikely to be at the same level the next year.
If you don’t file a tax return
You can still claim the tax relief if you don’t file a tax return by contacting HMRC. They can prepare a tax calculation and include it in your tax code.
Conclusion
Charitable giving is a win-win for higher-rate taxpayers; you support causes close to your heart while benefiting from generous tax relief. By keeping a clear record of your donations, you can maximise your impact while reducing your tax liability.
If you need guidance on tracking your charitable giving or help with your self-assessment, feel free to get in touch. Let’s ensure your generosity is as tax efficient as possible!
