Tax on Donations to UK Charities

Leon12

Hello,

My parents have recently sold a house which they were given in a will by a recently deceased neighbour and they would like to use £10k of the money from the house sale by donating to 5 UK registered charities giving £2k to each one. This is separate from the charities that were listed in the persons will which they have already settled and paid.

My question is, do they need to pay any tax of any sort on these donations? I have tried to research this myself but am unable to find the answer as the money is not coming directly from their income but rather is coming from the money they received from the house sale. They were told by the solicitor that they were not required to pay any capital gains tax when they sold the house so I am just putting that information here as I am not sure if that is relevant or not. So the money is essentially coming from their own personal funds.

They have already identified the 5 charities they want to give money to which I have checked on the Government website are all fully registered UK charities and of course we want to make sure we do this properly, hence this post.

Thanks in advance for any help given.

Leon

Savvy_Sue

No. 

Do your parents pay income tax? If either or both of them do, then Gift Aid will increase the value of the donations still further, but at that level of generosity they need to ensure they don't exceed the amount of tax they pay.

General_Grant

Leon12 said:

Hello,

My parents have recently sold a house which they were given in a will by a recently deceased neighbour and they would like to use £10k of the money from the house sale by donating to 5 UK registered charities giving £2k to each one. This is separate from the charities that were listed in the persons will which they have already settled and paid.

My question is, do they need to pay any tax of any sort on these donations? I have tried to research this myself but am unable to find the answer as the money is not coming directly from their income but rather is coming from the money they received from the house sale. They were told by the solicitor that they were not required to pay any capital gains tax when they sold the house so I am just putting that information here as I am not sure if that is relevant or not. So the money is essentially coming from their own personal funds.

They have already identified the 5 charities they want to give money to which I have checked on the Government website are all fully registered UK charities and of course we want to make sure we do this properly, hence this post.

Thanks in advance for any help given.

Leon

Answer:  No.  They give whatever they want.

The original source of the money is of no consequence.  It is theirs to do with as they wish.

If they pay income tax on other income (wages, pension, interest, etc), then, if what they pay in tax comes to £2,500 or more, then all of the £10,000 could be gift aided.  But that is on the basis that any other money they gift aid in the year together with these donations would not use up all their tax.  If they pay higher rate tax, there are benefits to themselves too.  Also remember that they would be paying tax individually rather than on their combined income.

Savvy_Sue

Thanks to General_Grant who has set out very clearly the position I was leading to, but too brain-fuddled to give any details! 

Leon12

Thanks everyone for the replies - that is good to know. It sounds then that it is as easy as going to the donate section of the charities websites, paying the £2000 to each of them and its job done.

Both of them are retired so they do not pay income tax on earnings and they only have very small pensions so I dont think what they will pay in tax will come to £2500 or more.

What do you mean by not using up all of their tax?

Thanks again.

Leon?

FatherTireseus

‘Not using up all their tax’ means there is a limit to how much you can donate and for it to be eligible for gift aid - currently 4 times the amount of tax paid in a year.

https://www.gov.uk/donating-to-charity/gift-aid

When someone donates to charity and adds gift aid, the charity can claim back 25p in the £ donated.  So if someone only paid £1,000 in tax they could only donate £4,000 which would be eligible for gift aid, as HMRC would allow the charity to claim back 25% of the £4K donation, which would amount to the £1k tax the donor had paid.

if someone tries to donate any large amount which would result in more gift aid than tax they’d paid, HMRC would require them to repay the tax.

What I suspect General Grant was saying was, if your parents have already made any other charitable donations with gift aid, they can only make further donations with gift aid if the donations won’t exceed four times the amount they’ve paid in tax. 

If your parents haven’t paid £2,500 in tax then it looks like they wouldn’t be able to make the gift aid declaration.  Indeed, if they haven’t paid that much tax then they shouldn’t make the gift aid declaration as they could end up having to foot the bill for the tax relief.

Savvy_Sue

Leon12 said:

Thanks everyone for the replies - that is good to know. It sounds then that it is as easy as going to the donate section of the charities websites, paying the £2000 to each of them and its job done.

Both of them are retired so they do not pay income tax on earnings and they only have very small pensions so I dont think what they will pay in tax will come to £2500 or more.

What do you mean by not using up all of their tax?

 Let's assume that your friends are already regularly donating to some charities / their local church. If they have already signed up to Gift Aid on those donations, then they need to do a quick check of how much they are already giving, and therefore how much Gift Aid the charities are reclaiming. 

These figures may not be completely rational, but as an example: 

£100 per month donation = £20 per month reclaimable under Gift Aid = £240 of their income tax going indirectly to a charity via Gift Aid, because the charity claims it back from HMRC. 

Currently, generally, around £12570 of their income will be free of income tax - each (there may be some variations to this). So they may be paying very little income tax, but they need to get a handle on how much! My private pension sends me a P60 each year so that's one way to get the information ... 

I hope that makes sense. All our regular charity donations are done in my name, because there were a few years when DH wasn't paying any tax, so he couldn't Gift Aid what he wasn't paying. 

I'll just add that if they establish that they do not, in fact, pay enough tax to cover the total of the Gift Aid, they may need to resist attempts by / requests from the lucky charities to sign Gift Aid forms. Although it's clearly set out on the best worded Gift Aid declarations, I wouldn't rely on everyone employed by a charity to understand the details of how the scheme works. (General_Grant may disagree with this, but I suspect the pair of us are on the nerdy side on this topic ...) And the immediate reaction to a big donation is "hey, let's see if we can get this Gift Aided!" - after the "Wow, this is fantastic, we're so grateful" moment.