Charitable donations and tax relief

Charitable giving (and tax relief)

Over the years the number of clients who choose to gift money has increased.

Helping our clients to make charitable donations in a tax efficient way maximises the amount they can give and considers how the donor can reduce their tax payments.

How tax is calculated on a donation

Where a qualifying donation is made by an individual in a tax year, he is treated for the purposes of income tax as if:

(a) the gift had been made after deduction of income tax at basic rate, and

(b) the basic rate and higher rate tax limits were increased by an amount equal to the “grossed up” amount of the gift.

As an example, imagine an individual with employment income subject to tax at the higher rate of 40%, who gives £400 to charity. The grossed up value of the gift is £500. The charity can recover the basic rate tax, i.e., £100 from H.M.Revenue & Customs (HMRC.) The donor can recover a further £100 of tax being the difference between the higher rate tax due and basic rate (40%-20%.) This is claimed via the donor’s tax return or adjusting the PAYE notice of coding.


The option of carry back

An interesting opportunity, in some circumstances, is that it is possible to carry back charitable payments to the previous tax year. However care is needed as an election to carry back a qualifying donation must be made on or before the date on which a tax return is submitted for the previous tax year.

Reasons to consider the carry back of charitable payments may be:

  • To claim higher rate tax relief sooner.
  • Where a donor won’t pay higher rate tax in the current year, but did in the previous year.
  • Where the donor is caught by the effective 60% tax bracket, i.e., on income in the range from £100,000 – £125,000 where personal allowances are withdrawn by £1 for every £2 of extra income.

Understanding your tax relief options is an important part of your financial planning.

If you have any questions on this or any other subject, please get in touch with any of the Paradigm Norton team, after all, we are here to help.


We are here to help

At Paradigm Norton we work with you to achieve your goals and help make them a reality. Our tax and business services team work closely with our financial planning team to advise and guide you on the best course of action for you and your finances.

This article is for educational purposes and should not be considered as advice. Every care has been taken to ensure that this information is correct and in accordance with our understanding of the law and HM Revenue & Customs practice, which may change in the future. Tax planning is not regulated by the Financial Conduct Authority.

Speak to a member of our financial planning team today in Bristol on 01275 370 670 and in London on 020 7269 7960