Postby someone » Wed Mar 08, 2017 6:31 pm
Yes, you get your basic rate allowance back. Your charitable gift reduces your income.
So if you earn 100005 and give £4 (net) to charity then the charity gets £5 which reduces your income to 100000. You get the £2.50 of allowance back and your tax bill goes down by £2. (60% of £5 less the £1 that the charity has already claimed)
So your £5 to charity has cost you £2 from disposable income.
Pension contributions achieve the same thing.
You get similar sorts of relief for charitable donations if you're in the 150000-210000 band where your pension annual allowance is dropping (assuming you're making maximum pension contributions)
The tax relief on charitable donations can (I think) exceed 1.4 million % in certain circumstances:
Assume someone earns 210001 and has 60000 available in pension carry back. If they make a 100000 contribution to charity they will exceed their annual allowance by 30000 and have to pay tax on that amount.
But if they give just £1 to charity, then their threshold income is 110000 which means that there's no reduction in their pension annual allowance and they don't have to pay tax on that 30000 - that £1 to charity has a net benefit to them of over £14000!
The rules for calculating the threshold income are circular as your annual allowance depends on the threshold income but the threshold income depends on how much you contribute to a pension. So maybe there's something somewhere that stops us getting tax relief of over 100%