Gift Aid confusion re: tax help please

[Deleted User]

chrisbur said:

zagfles said:

Asker said:

amanda1024 said:

Asker said:

I've read but I still don't get it, sorry. 

I am currently (privileged enoguh to be) a higher rate (45%) tax payer but may not be for much longer.   I made a promise to myself to give £12k to charity, and that is exactly what I intend to do.  However, I understand I will have some tax relief so want to do it while I'm this higher rate. 

I've also looked into Gift Aid and understand the charity will get extra money if I do that.  That's obviously fine by me, but maybe not if it means I then get less tax relief. 

I don't fully understand the tax implications basedon the gov uk 'help' on this.  

If I pay 12k and don't do gift aid will I get relief on the full 12k?  (so it'll cost me 0.45x12k less?)  If I do gift aid will I only be able to claim a smaller amount?   

I don't think you get a choice to 'claim' both sets of gift aid. The charity will be able to claim basic rate gift aid, and you'll be able to claim the extra higher rate gift aid. What some people do is to reduce the amount they give to the charity such that the total the charity receives (the core donation plus basic gift aid) is the total amount they want to donate

Thanks yes a workaround may be an option, although I'm not sure how that sits with my conscience as it may not fulfill my promise.

So if I don't go via gift aid I won't be able to claim 45% for myself?

It's exactly the same! If you want the charity to get £12k, you donate £9600. The charity claims £2400 tax relief so they get £12k

You then get your basic rate band extended by £12k giving you an extra £3000 tax relief. Charity gets £12k, it's cost you £6600 (your £9600 net donation minus £3000 tax relief). Exactly the same as you getting full 45% relief on £12k. 

"you donate £9600"
"charity claims £2400 tax relief"
"giving you an extra £3000 tax relief".

Probably just my maths at fault here but this seems to be creating £5400  in tax relief when only £4320 tax would have been paid on the £9600

Agreed but if the op was a 40% taxpayer:

£9600 donated 
Charity claims £2400 tax relief
An extra £2400 relief claimed by donor 

Cost to donor £9600-£2400-£2400 = £4800
Only £4320 tax paid on the £9600 donation. 

The difference is the extra 5% on the grossed up donation. 
 

zagfles

chrisbur said:

zagfles said:

Asker said:

amanda1024 said:

Asker said:

I've read but I still don't get it, sorry. 

I am currently (privileged enoguh to be) a higher rate (45%) tax payer but may not be for much longer.   I made a promise to myself to give £12k to charity, and that is exactly what I intend to do.  However, I understand I will have some tax relief so want to do it while I'm this higher rate. 

I've also looked into Gift Aid and understand the charity will get extra money if I do that.  That's obviously fine by me, but maybe not if it means I then get less tax relief. 

I don't fully understand the tax implications basedon the gov uk 'help' on this.  

If I pay 12k and don't do gift aid will I get relief on the full 12k?  (so it'll cost me 0.45x12k less?)  If I do gift aid will I only be able to claim a smaller amount?   

I don't think you get a choice to 'claim' both sets of gift aid. The charity will be able to claim basic rate gift aid, and you'll be able to claim the extra higher rate gift aid. What some people do is to reduce the amount they give to the charity such that the total the charity receives (the core donation plus basic gift aid) is the total amount they want to donate

Thanks yes a workaround may be an option, although I'm not sure how that sits with my conscience as it may not fulfill my promise.

So if I don't go via gift aid I won't be able to claim 45% for myself?

It's exactly the same! If you want the charity to get £12k, you donate £9600. The charity claims £2400 tax relief so they get £12k

You then get your basic rate band extended by £12k giving you an extra £3000 tax relief. Charity gets £12k, it's cost you £6600 (your £9600 net donation minus £3000 tax relief). Exactly the same as you getting full 45% relief on £12k. 

"you donate £9600"
"charity claims £2400 tax relief"
"giving you an extra £3000 tax relief".

Probably just my maths at fault here but this seems to be creating £5400  in tax relief when only £4320 tax would have been paid on the £9600

The gross donation is £12k. The tax paid on that would be £5400. So by donating £12k the OP saves £5400 in tax. 

But instead of actually giving £12k, the OP gives £9.6k and the charity claims the basic rate relief on the gross donation. If gift aid worked by every taxpayer having to claim full relief and the charity getting none, it would be identical. £12k to the charity and £5400 relief to the OP.  Charity gets £12k, cost to OP is £6600, cost to govt in tax relief £5400. 

It's done like this to make life easy for basic rate taxpayers, ie the majority of taxpayers. Maybe not the vast majority these days, but probably still the majority. They just pay the net contribution and the charity claims the tax relief, and that's it, no more needs to be done. Same way as RAS pension contributions work. Only higher/additional rate taxpayers need to claim the extra tax relief. 

chrisbur

zagfles said:

chrisbur said:

zagfles said:

Asker said:

amanda1024 said:

Asker said:

I've read but I still don't get it, sorry. 

I am currently (privileged enoguh to be) a higher rate (45%) tax payer but may not be for much longer.   I made a promise to myself to give £12k to charity, and that is exactly what I intend to do.  However, I understand I will have some tax relief so want to do it while I'm this higher rate. 

I've also looked into Gift Aid and understand the charity will get extra money if I do that.  That's obviously fine by me, but maybe not if it means I then get less tax relief. 

I don't fully understand the tax implications basedon the gov uk 'help' on this.  

If I pay 12k and don't do gift aid will I get relief on the full 12k?  (so it'll cost me 0.45x12k less?)  If I do gift aid will I only be able to claim a smaller amount?   

I don't think you get a choice to 'claim' both sets of gift aid. The charity will be able to claim basic rate gift aid, and you'll be able to claim the extra higher rate gift aid. What some people do is to reduce the amount they give to the charity such that the total the charity receives (the core donation plus basic gift aid) is the total amount they want to donate

Thanks yes a workaround may be an option, although I'm not sure how that sits with my conscience as it may not fulfill my promise.

So if I don't go via gift aid I won't be able to claim 45% for myself?

It's exactly the same! If you want the charity to get £12k, you donate £9600. The charity claims £2400 tax relief so they get £12k

You then get your basic rate band extended by £12k giving you an extra £3000 tax relief. Charity gets £12k, it's cost you £6600 (your £9600 net donation minus £3000 tax relief). Exactly the same as you getting full 45% relief on £12k. 

"you donate £9600"
"charity claims £2400 tax relief"
"giving you an extra £3000 tax relief".

Probably just my maths at fault here but this seems to be creating £5400  in tax relief when only £4320 tax would have been paid on the £9600

The gross donation is £12k. The tax paid on that would be £5400. So by donating £12k the OP saves £5400 in tax. 

But instead of actually giving £12k, the OP gives £9.6k and the charity claims the basic rate relief on the gross donation. If gift aid worked by every taxpayer having to claim full relief and the charity getting none, it would be identical. £12k to the charity and £5400 relief to the OP.  Charity gets £12k, cost to OP is £6600, cost to govt in tax relief £5400. 

It's done like this to make life easy for basic rate taxpayers, ie the majority of taxpayers. Maybe not the vast majority these days, but probably still the majority. They just pay the net contribution and the charity claims the tax relief, and that's it, no more needs to be done. Same way as RAS pension contributions work. Only higher/additional rate taxpayers need to claim the extra tax relief. 

Got it now many thanks

Albermarle

Probably just my maths at fault here but this seems to be creating £5400  in tax relief when only £4320 tax would have been paid on the £9600

For the OP to have £9600 after tax, which is what is being donated,  they would have to have earned a lot more than that and pay a lot more tax than £4320.