Tax efficient way to donate to a charity

agnomen

This is a simple question but I’m getting on (and easily confused!).  I want to donate £2000 (including any Gift Aid) to a registered charity. The money will come from part of a drawdown from a £27,980 pension pot. 

I do not pay any tax at the moment - I’m on benefits/ pension credit - but I gather, after the first £6995 (25%) drawn down I will pay tax. I’m planning to drawdown around half the above pot.  

I don’t want to pledge Gift Aid for tax I haven’t paid, so how much tax will I pay on the balance that I can then contribute in Gift Aid? 

Marcon

agnomen said:

This is a simple question but I’m getting on (and easily confused!).  I want to donate £2000 (including any Gift Aid) to a registered charity. The money will come from part of a drawdown from a £27,980 pension pot. 

I do not pay any tax at the moment - I’m on benefits/ pension credit - but I gather, after the first £6995 (25%) drawn down I will pay tax. I’m planning to drawdown around half the above pot.  

I don’t want to pledge Gift Aid for tax I haven’t paid, so how much tax will I pay on the balance that I can then contribute in Gift Aid? 

I'm not sure the question is that simple!

How are you taking the tax free cash element of your pension pot? Are you:

1. taking the whole 25% tax free bit (£6,995) as part of your initial withdrawal, with a further (potentially) taxable £6,995?  
2. taking £13,990 from your pension pot, with 25% of it tax free (i.e. £10,492.50 is potentially taxable)?

Provided you make your charitable donation in the same tax year as you drawdown half the pot, and your have at least £2,000 of taxable income, you can tick the gift aid box with a clear conscience. Option 2 above should comfortably achieve that IF you have taxable benefits? Pension credit is not taxable.

But...be aware that drawing down from your pension could impact on the benefits/pension credit to which are entitled, so that could complicate things, especially if your taxable income is reduced below £2,000.