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Where Taxpayers and Advisers Meet

Charitable giving and Higher Rate tax

kebata
Posts:27
Joined:Tue Feb 21, 2012 7:10 am
Charitable giving and Higher Rate tax

Postby kebata » Wed Mar 08, 2017 3:45 pm

I am aware that charitable giving pushes up the basic rate tax threshold by a little more than 1.25 times the amount donated. Does it do the same to the Higher Rate threshold? As from April 2017 there is a personal allowance claw back if your income is over £100,000 - would charitable giving of any amount over 100,000 eliminate the claw back?

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am

Re: Charitable giving and Higher Rate tax

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%

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am

Re: Charitable giving and Higher Rate tax

Postby someone » Wed Mar 08, 2017 6:33 pm

"100000 contribution to charity" should, of course, have been "100000 contribution to their pension"

kebata
Posts:27
Joined:Tue Feb 21, 2012 7:10 am

Re: Charitable giving and Higher Rate tax

Postby kebata » Thu Mar 09, 2017 1:09 pm

Many thanks, Someone.
You lost me a bit towards the end of your reply..............but as it does not apply to me I shan't ask any more questions!! Much appreciated the earlier advice.


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