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    • starkrush
    • By starkrush 28th Dec 17, 2:43 PM
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    starkrush
    Gift aid, CGT and higher rate
    • #1
    • 28th Dec 17, 2:43 PM
    Gift aid, CGT and higher rate 28th Dec 17 at 2:43 PM
    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.

    As a result, if you add up salary/dividend/capital gains I go into the higher rate of tax. However, I'm claiming gift aid on my income which, once that takes effect, I'll be back on the basic rate (and on a lower rate for CGT too). So my questions are:

    1) Has anyone claimed gift aid on CGT? I'm pretty sure it's allowed, see e.g. HMRC's website (guidance on gift aid - I can't link it as a new user), but I don't want to try it and for it to turn out HMRC is going to change their mind.

    2) Has anyone claimed enough gift aid to put them into a lower tax band? I know you can get higher rates of relief with gift aid, my main concern is HMRC treating it as me being on the higher rate for CGT and then giving me relief, rather than actually me being treated as a basic rate taxpayer.

    Thank you!
Page 1
    • Keep pedalling
    • By Keep pedalling 28th Dec 17, 8:09 PM
    • 5,091 Posts
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    Keep pedalling
    • #2
    • 28th Dec 17, 8:09 PM
    • #2
    • 28th Dec 17, 8:09 PM
    Capital gains is not income tax, so you will not be a higher tax payer.
    • 00ec25
    • By 00ec25 28th Dec 17, 11:03 PM
    • 6,502 Posts
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    00ec25
    • #3
    • 28th Dec 17, 11:03 PM
    • #3
    • 28th Dec 17, 11:03 PM
    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.
    Originally posted by starkrush
    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
    Last edited by 00ec25; 28-12-2017 at 11:51 PM.
    • starkrush
    • By starkrush 28th Dec 17, 11:44 PM
    • 6 Posts
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    starkrush
    • #4
    • 28th Dec 17, 11:44 PM
    • #4
    • 28th Dec 17, 11:44 PM
    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?
    • 00ec25
    • By 00ec25 28th Dec 17, 11:49 PM
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    00ec25
    • #5
    • 28th Dec 17, 11:49 PM
    • #5
    • 28th Dec 17, 11:49 PM
    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?
    Originally posted by starkrush
    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
    Last edited by 00ec25; 28-12-2017 at 11:53 PM.
    • starkrush
    • By starkrush 28th Dec 17, 11:56 PM
    • 6 Posts
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    starkrush
    • #6
    • 28th Dec 17, 11:56 PM
    • #6
    • 28th Dec 17, 11:56 PM
    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'?
    • 00ec25
    • By 00ec25 29th Dec 17, 12:13 AM
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    00ec25
    • #7
    • 29th Dec 17, 12:13 AM
    • #7
    • 29th Dec 17, 12:13 AM
    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'?
    Originally posted by starkrush
    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
    Last edited by 00ec25; 29-12-2017 at 10:55 AM.
    • starkrush
    • By starkrush 29th Dec 17, 12:24 AM
    • 6 Posts
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    starkrush
    • #8
    • 29th Dec 17, 12:24 AM
    • #8
    • 29th Dec 17, 12:24 AM
    Haha no problem - I've been looking into this a lot myself. And the numbers I had were made up - I'm going to max out gift aid and don't think I can use dividends for that purpose.
    • madgagoo
    • By madgagoo 29th Dec 17, 6:24 AM
    • 347 Posts
    • 175 Thanks
    madgagoo
    • #9
    • 29th Dec 17, 6:24 AM
    • #9
    • 29th Dec 17, 6:24 AM
    The income tax paid on dividend income is allowable for gift aid purposes.
    • starkrush
    • By starkrush 29th Dec 17, 9:51 AM
    • 6 Posts
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    starkrush
    madagoo, can you link a source for this? I've only seen it specified as "income tax or capital gains tax" and not found dividends in the same resources.
    • purdyoaten2
    • By purdyoaten2 29th Dec 17, 10:09 AM
    • 868 Posts
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    purdyoaten2
    madagoo, can you link a source for this? I've only seen it specified as "income tax or capital gains tax" and not found dividends in the same resources.
    Originally posted by starkrush
    Section 3.5.2 in the document below

    https://www.gov.uk/government/publications/charities-detailed-guidance-notes/chapter-3-gift-aid#chapter-35-tax-to-cover
    purdyoaten lost his password
    • 00ec25
    • By 00ec25 29th Dec 17, 10:10 AM
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    00ec25
    "3.5.2 The introduction of the Dividend Allowance on 6 April 2016, means that individuals won!!!8217;t pay tax on the first £5,000 of their income from dividends paid by companies that they own shares in. This means that only donors that have paid tax on dividend income over the £5,000 allowance will have some tax that can be used to cover their Gift Aid donations to charities and community amateur sports club (CASC!!!8217;s)."

    taken from here:
    http://lmgtfy.com/?q=tax+on+dividends+and+gift+aid

    https://www.gov.uk/government/publications/charities-detailed-guidance-notes/chapter-3-gift-aid

    EDIT... Ha ha ... beaten by purdy. I shouldn't have stopped to put the LMGTFY link in having now found the time to research it
    Last edited by 00ec25; 29-12-2017 at 10:56 AM.
    • starkrush
    • By starkrush 29th Dec 17, 2:23 PM
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    • 0 Thanks
    starkrush
    Thanks! I think that's actually almost the exact passage that confused me, because 3.5.1 describes it as "income tax or capital gains tax" to be covered - but looking at it they classify tax on dividends as income tax. Glad it's cleared up
    • TBC15
    • By TBC15 5th Jan 18, 3:01 PM
    • 489 Posts
    • 250 Thanks
    TBC15
    Sorry if I missed it but has the CGT allowance of £11300 been mentioned?
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