Often overlooked is the opportunity for higher rate taxpayers to claim additional tax relief on their donations to charity.
Under the Gift Aid scheme, charities may reclaim basic-rate tax from donations received from UK taxpayers. As an illustration of how the scheme works let’s say a donor makes a charitable donation of £100. As the donation is deemed to have paid under the deduction of basic-rate income tax of 20%, the charity can reclaim £25 from HMRC (ie £100÷80 x 20).
For a basic rate taxpayer the tax rate claimed by the charity is equal to the income tax rate paid by the donor. However, if the donor is a higher rate taxpayer, the difference between the higher rate of income tax of 40% and the basic rate of 20% already claimed by the charity can be claimed by the donor.
Additional rate taxpayers at 45% will get relief on the difference between the basic rate and their additional rate. Simply put this means a donation worth £125 to a charity would cost the donor £68.75.
It is therefore important to keep a record of charitable gift aid payments to ensure the correct tax relief is claimed.
10/01/2018
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