Gift aid, CGT and higher rate

starkrush wrote: »

Hi all,
I was hoping to get some information on how gift aid affects tax bands. My situation in more detail for this financial year:
Salary: £25k
Dividend income: £11k
Capital gains: ~£30k (trying to redeem a lot this year)
Donations to charity: ~£20k.

Position without gift aid
salary: 25 - 11.5 personal allowance = 13.5 (subject to income tax at 20%)
dividends 11 - 5 @ 0% dividend tax rate = 6 (subject to 7.5% dividend tax)
so your total taxable income is 13.5 + 6 = 19.5, so you are a basic rate income tax payer
the (income tax) higher rate band is at 33.5, so you have 14k of basic rate tax band remaining
you have CGT gain of 30k of which 14k would be taxed at 10% and (30-14) 16k would be taxed at 20%

Correct position reflecting gift aid extension of basic rate band
you have made gift aid donations of 20k and the grossed up value of that will extend your basic rate band above the 33.5 start point

so a 20k donation grossed up (20 x 100/80) = 25k

the 25k is added to the basic rate band 33.5 to give an adjusted basic rate band of 58.5

your revised calculation is therefore:
total taxable income is 13.5 + 6 = 19.5
amount of basic rate band remaining: 58.5 - 19.5 = 39
CGT due on 30k gain: (30 @ 10%) + (0 @ 20%)

explained here:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg21220

naturally for the whole 25k gift aid donation to count the taxpayer must have paid tax in the form of either income tax and/or CGT of more than the value of the tax relief on the gift aid. A simple check shows that condition is met:
Tax paid: (13.5 x 20%) + (6 x 7.5%) + (30 x 10%) = £6,150

gift aid relief claimed by the charity 20,000 x 25% = 5,000 (ie 25k gross donation @ 20% tax = 5k)

the gift aid relief is covered by the tax payable by the OP, so the claim stands. This does of course assume OP has genuinely paid 20k as formally recorded gift aid donations to registered charities who have kept the right records of it

starkrush wrote: »

Thanks so much 00ec25 - this is exactly what I was looking for! Minor point - my capital gains are on investments, so are taxed at 10%(/20%) respectively I think?

OK, I have edited my post to reflect those cgt rates - I only deal with property so am fixated on 18 & 28

https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances

starkrush wrote: »

Thank you again - really appreciate you going above and beyond to help me (& anyone in future in a similar position!)

One other point actually comes to mind too - I don't believe(/am not aware) that you can claim gift aid on dividend income? Or do dividend tax rates count as 'income tax'?

arrrgh

that, I have to admit, is one of the points a more knowledgeable person may pick me up on as I am not sure myself and don't want to research it at this time of night