Giving more to charity as a 40% tax payer?

ikr2

Hi, I may just edge into the 40% tax rate bracket soon. Say I give £100 a year to a charity. At the moment the charity gets an extra £25 in gift aid (a refund on the income tax I paid on that £100).

If I become a higher rate tax payer, I can claim the extra 20% back (another £25). How do I make sure that this gets to the charity and they benefit from the fact I pay more tax? If I increase my net donation, the actual cost to me increases. I just want to donate £100 net and make sure the charity gets the full £150

[Deleted User]

Other than donating the extra £25, you can’t - although the cycle restarts as this is grossed up to £32.50 and you can claim an additional £7.50. 

The principle is that, in your example, the charity is deemed to have received £125 from you but has suffered a tax deduction of £25. As a non-taxable entity it can reclaim this deemed tax. You can claim the additional rate relief as a potentially higher rate taxpayer but this is personal to you and nothing to do with the charity.  

Strummer22

The way I think of it is that you need to donate 75% of what you want the charity to receive. If you want the charity to receive £150, you will need to donate £120. As @[Deleted User] noted, this actually benefits you more than you might expect.

When you tell HMRC that you donated £120, they will adjust your personal allowance (i.e., tax-free income band) upwards by the value of your donation, plus 25%. In this case, that would be £150. That means all your earning limits go up by £150 - the relevant one to this calculation is the level of income at which you start paying 40% tax. There is now an extra £150 of your income that you only pay basic rate tax on rather than higher rate. Your adjusted tax rate will return £150 x 20% = £30 to you. 

Net result - charity receives £150 at a cost to you of £90.