HMRC has today issued the latest statistics on the amount of tax relief paid to organisations and individuals on charitable donations. Highlights include:
• £3.2bn was given to charities last year
• The average person donated £2,590, up 6% on the previous year
• People reclaimed £1.5bn of personal tax reliefs on their donations
Laura Suter, personal finance analyst at investment platform AJ Bell, comments:
“People are donating more than ever before to charities, with £3.2bn of charitable donations recorded through people’s tax self-assessment last year. The average amount donated per person rose by £150 over the past year, but fewer people are actually giving money, so we have a smaller pool of people handing over more cash.
“When you look at the tax relief available it’s a win-win situations for donors, with individuals claiming back tax relief and charities benefitting from Gift Aid. The Government handed charities £1.4bn in Gift Aid relief in 2018-19, £90m more than the previous year, although the lion’s share of this still goes to a small number of large charities.
“At the same time individuals reclaimed more than £1.5bn in personal tax relief as a result of donating to good causes. People can use their donations to help cut their tax bill, make them eligible for certain tax breaks or benefits and use them as sensible tax planning after their death.
“Last year the total amount of inheritance tax saved was £890m, while higher-rate taxpayers also claimed £520m in income tax relief. The lesser-known relief available to investors who donate shares or those who donate land or property also saved people £80m in tax last year.”
How to use charitable giving to your advantage:
“Despite those over the age of 65 being the most likely to donate to charity, parents can use their charitable donations cannily to get access to Government benefits. Any parent who earns more than £50,000 will start to see their Child Benefit taken away, at a rate of 1% for every £100 earned – so it is totally wiped out once they earn £60,000. It means the effective tax rate for those getting the maximum child benefit is almost 58% between £50,000 and £60,000. But these parents can reduce their earnings by giving to charity, which they then need to declare to HMRC on their tax return.
“You can use the same trick to avoid being thrown out of the tax-free childcare system. The scheme, where you can get up to £2,000 a year towards childcare each year, per child, is only available for couples who both have an income of less than £100,000. One way to reduce your income, if you’ve just tipped over the £100,000 mark, is to make charitable donations and use gift aid to reduce your income.
“There are big inheritance tax breaks available if you leave money to charity in your will. If you leave at least 10% of your estate to charity the rate of inheritance tax you pay on the rest of your estate is reduced from 40% to 36%. What’s more, that gift to charity from your estate is free of inheritance tax.
“Anyone can donate their shares to charity, or sell them at below market value. There’s a double-whammy saving here, as you save on income and capital gains tax. The value of the donation counts like a cash donation for income tax purposes, but you also will not pay CGT on any gain you hand over to a charity.”
How Gift Aid works:
If you donate money and use Gift Aid, the charity will get a boost to any money you donate by claiming back the tax due. It means that for every £1 you donate, the charity can claim back 25p. You’ll need to fill in a form with the charity and be a UK taxpayer, and they do the rest of the work.
If you’re a higher-rate taxpayer you can also claim back money through your tax return. You will get 20% tax relief on the full donation. So if you donate £100, and the charity gets £25 back through tax relief, then a higher-rate taxpayer can get back 20% of the £125, which equals £25.
This effectively works by increasing your basic-rate tax band by the amount you donate. So if you donate £1,000, you basic-rate tax threshold will increase from £50,000 to £51,000, in the current tax year.