Year End Tax Review 2023/2024 – Blog 4 – Gift Aid

This is a valuable relief for gifts to charities: the gift is made out of the donor’s taxed income and the charity benefits by claiming basic rate tax on the value of the gift.

• Rest of the UK higher rate taxpayers can claim extra tax relief of 20% of the gross value of the gift. Scottish higher rate taxpayers can claim extra tax relief of 21% of the gross value of the gift.
• For rest of the UK top rate taxpayers the extra relief is 25% and for Scottish top rate taxpayers the extra relief is 26%.
• There is no cap on the amount that can qualify for Gift Aid, provided the donor has paid sufficient tax during the tax year to cover the charity’s reclaim from HMRC.

Example 1 

If you are a rest of the UK higher rate taxpayer and you make an £800 donation to a charity, the gross value of the gift to the charity is £1,000, since it can claim back the basic rate tax of £200.

You can claim an additional 20% tax relief on the gross value, reducing the net cost to £600.

Example 2

If you are a Scottish higher rate taxpayer and you make an £800 donation to a charity, again the gross value of the gift to the charity is £1,000, since again it can claim back the basic rate tax of £200.

You can claim an additional 21% tax relief on the gross value, reducing the net cost to £590.

In order for a donation to qualify for tax relief, the charity previously had to be located in an EU member state (plus Iceland, Norway and Liechtenstein) and be recognised as a qualifying charity by HMRC. However, as part of the post-Brexit changes to tax legislation in the UK, this is now changing.

The ability to have a non-UK charity qualify has been removed. There is a transitional period though, so that a non-UK charity which had asserted its status before 15 March 2023 will continue to qualify until 1 April 2024 (for company donations) or 5 April 2024 (for individual donations). After that, no relief will be available where donations are made to non-UK charities. This will be the case even if those overseas charities have UK activities.

Planning points

• You must provide the charity with a Gift Aid declaration, so that both parties can claim the relevant tax relief.

• You can elect for donations made in one tax year to be treated for tax purposes as made in the prior year.
  • This would be of benefit, for example, if you are a higher or top rate taxpayer in 2023/2024 but not going to be in 2024/2025; in other cases, it will merely accelerate the higher or top rate relief.
  • The election can only be made when submitting your tax return, which must be filed on time.

• Donating assets (eg shares, land and property) to charity while you are alive can also attract income tax relief. Additionally:
  • any gain arising on the donation of such assets is exempt from CGT; and
  • the gift itself is not subject to Inheritance Tax (IHT), even if the donor dies within seven years.

If you are considering a gift to charity, we can make sure that it will meet the qualifying requirements.

It will be particularly tax-efficient if the gross donation brings your income below the thresholds at which the Personal Allowance abatement or the High Income Child Benefit Charge start to bite.

Donating land, property or shares

As an alternative to gift aid, you may wish to donate land, property or quoted shares to a charity which offers significant tax advantages in the UK.

When you donate any such assets to a charity you will receive the following tax relief:

1. Exemption from Capital Gains Tax (CGT): You may typically pay CGT on any gain you make when selling assets. However, if you gift these directly to charity, you will be exempt from CGT on the entire value of the assets. This means you will not need to pay CGT on any gains made

1. Income Tax Relief: Depending on your personal income tax position you can claim income tax relief on the market value of the assets you donate. This effectively reduces your taxable income and your income tax liability in the tax year that you make the gift

1. Inheritance Tax: a gift to charity is considered an ‘exempt transfer’ for Inheritance Tax (IHT) purposes, meaning there is no IHT payable even if the donor dies within seven years

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.