High earners donating to charities can cut their tax bills and increase the money their favourite causes receive by maximising their use of tax relief.
Higher rate (40%) and additional rate (50%) taxpayers can claim relief on their donations at their highest marginal rate.
Providing a donor makes the necessary declaration and has paid sufficient tax, both the taxpayer and the charity (or charities) can gain. A 40% taxpayer donating £500 to a charity can claim £125 tax relief, making the net cost £375, whilst the charity will receive £625.
Kari Mellon (pictured), senior manager in Wealth Strategies at Cooper Parry, said: “Charitable donations can form part of your annual tax planning. If your ‘adjusted net income’ falls between £100,000 and £112,950 you will see your personal allowance restricted.
“However, the definition of your adjusted net income is your total income less some specific deductions. One such deduction is the gross value of charitable donations. If a taxpayer with total income of £105,000 makes a net charitable donation of £5,000, the net cost of this donation is actually £2,750 due to the tax relief and the reinstatement of the full personal allowance.
“With the ability to carry charitable donations back to the previous tax year (subject to a time limit), your charitable donations can be valuable to your tax position as well as your chosen charities.”
Tax relief is also available when assets such as land, buildings or quoted shares are gifted to charity.
But Kari warns: “If you have not paid sufficient tax to cover the tax reclaimed by the charity, you will be faced with a tax charge, administered through your annual tax return.”