Christmas is the time of giving but did you know that did you know that you might be able to reduce your tax bill by donating to charity? In this week’s Tax Return Tuesday Blog we provide some useful information and tips if you are planning to give a charitable gift over the festive period.
The UK is one of the most generous countries in terms of charitable giving, beaten only by America, with over £10.4bn given to charities in 2014. We don’t all have a six-figure sum to give to charity but every little helps, and even gifts of annual membership to charitable organisations such as the National Trust are eligible - useful to know if you are currently thinking about Christmas presents for your loved ones!
Charitable donations as a limited company
If your business is a limited company you can record any donations you make as a ‘Payment of Charitable Donations’ in your company accounts, which will reduce your companies taxable profit.
Charitable donations as a sole trader
If you are a sole-trader or a partnership then any charitable donations you make will not count as a day-to-day running cost of your business. This means that if you make a donation from your business bank account you would need to record this transaction as a non-business transaction however, you may still be able to get tax relief for the donation if you’ve made it under Gift Aid.
Gift Aid was a scheme introduced by the government 25 years ago to support registered charities which has paid out over £13bn to date. The scheme allows charities to reclaim income tax in order to boost the valuation of donations received. Through Gift Aid charities can claim back basic-rate income tax (20%) - which is 25p for every £1. There is no minimum contribution so even on the smallest donation tax is reclaimable.
Higher Rate Tax Payers
Additionally, if you pay higher or top-rate tax you can claim back the difference between the tax rate you pay and basic rate so 20 per cent and 25 per cent respectively.
In order for your donations to be eligible you will need to fill in a Gift Aid declaration form to enable the charity to claim gift aid on your behalf. You can include all donations from the last four years.
However it is important to note that your donations won’t qualify for Gift Aid if they add up to more than four times what you have paid in tax for the associated tax year.
If your employer runs a Payroll Giving scheme, you can donate straight from your wages or pension. Donations are deducted after national insurance contributions but before income tax. This means that giving £1 would only cost you 80p if you are a basic-rate taxpayer, and 60p and 55p if you are a higher or top-rate tax payer respectively.
Leaving a gift to charity in your will
If you leave part of your estate to charity, it will either be excluded from inheritance tax, or if you leave over 10% you will benefit from an inheritance tax rate of 36% rather than the usual 40%. As an individual you can leave a maximum of £325k before having to pay inheritance tax, as a couple you can leave up to £650k tax-free.
Gifting your assets…
If you donate land, shares or property to charity you can pay less income tax by deducting the value of your donation from your total taxable income. Individuals can also benefit from a maximum of £11,100 of capital gains tax-free. Anything above this will be taxed up to 28%.
However you choose to donate to charity it is important that you keep records of any donations made including the dates and amounts, as well as any receipts for bank transfers or cash donations, for up to six years.
If you have any questions about the tax implications of charitable giving, or any other queries related to your accounts or taxes please get in touch with us.