Tax effective charity donations

bradie

My husband has died recently and I have started up a fund with a charity in his name, to which I want to donate £50000 over 10 years.

I currently earn just under £50000, and have savings where the interest will push me into the higher level of income tax.

My inheritance from my husband is below any level for probate or tax

Am I better to donate the £50000 now, or should I donate £5000 pounds each year?And if so, can this donation be offset against my taxable income, and effectively bring that below the level tax threshold?

Isthisforreal99

https://forums.moneysavingexpert.com/discussion/6669673/tax-effective-charity-donations

You will get no tax relief unless you are a higher rate taxpayer. At 50k you are not (unlessi in Scotland)

bradie

That is not true. Income either from earnings or from savings above the £52k-ish is taxed at 40%, rather than 20%. I am regularly charged at the higher amount. This is not the question.

The question is, if I were to donate £5000 a year that would bring me below this threshold would I have a reduction in tax? Would this be more cost effective than to donate the full amount up front?

DRS1

Make sure you gift aid the donations but yes with your level of income it makes sense to spread the donations over a number of years (depending on the level of your taxable savings interest (and any pay increases) you might want to do it over more than ten years though.

You also need to watch out for any pension contributions you make. If they are relief at source contributions they work in the same way as gift aid - pushing your higher rate tax threshold up.

So if your salary is £50k and your taxable savings interest is £5k and you make a relief at source contribution of £5k then there will be no higher rate tax left for your gift aid contribution to bite on.

kermchem

The interesting vocabulary used by HMRC in calculating your tax is that gift aid contributions and pension contributions with relief at source do not reduce your higher rate tax, they increase your basic rate limit - it is the same thing in the end, but they prefer to see it as more of your income taxed at basic rate rather than less at higher rate.