Donor liability less than gift aid claimed ?

[Dave12335]

Hi tax friends

If a HRTP donor makes a lump donation to a charity, what’s the maximum gift aid capacity per tax year (ignoring gift aid carry back) ?

At first glance it’s 4x tax paid. Or is it ?

S423 ITA 2007 talks about the tax treated as deducted etc vs the IT and CGT paid in the year etc.

What about this example :

IT paid before Gift Aid relief 20k (BR and HR)
Gift Aid donation 80k
Charity claims back 20k gift aid

But the taxpayer will also get HR relief so the actual tax paid after HR relief will be a bit less than 20k.

So does s423 etc restrict relief where a HRTP makes a 4x gift aid payment ? I think it may do as Amount B in s423 appears to be after the HR relief.

Could anyone just validate my thoughts ?

[jerome.lane]

It's a conundrum! You are correct, relief is always restricted so it never exceeds the tax credit attaching to the gift. As you're dealing with a current year assessment of tax, the tax paid is dependent on the relief for the gift to charity. It almost sounds like you're trying to work out the tax and then make a donation to wipe out the tax which wouldn't be due as the relief has just reduced the tax! It's far easier to use your tax software to run scenarios and then double check the software is working it out correctly.

[maths]

But the taxpayer will also get HR relief so the actual tax paid after HR relief will be a bit less than 20k.

No it won't.

The 20k is the amount of income tax deemed deducted at source at a rate of 20% of 100k (the gross gift aid payment).

So long as taxpayer's income tax liability exceeds 20k then no problems arise.

Whether the taxpayer is a basic rate or higher rate taxpayer makes no difference. If the latter then all this means is that his income tax liability is bigger than if he was simply a basic rate taxpayer (although the increase in liability is less than it would otherwise be given a gift aid payment has been made which allows an extended basic rate band to apply ensuring that the higher rate taxpayer gets full tax relief at 40%).

EG
Income 150,000. PA 12,500 Income tax liability 47,500 (covers 20k tax deducted re gift aid payment, 20,000) Basic rate taxpayer
Income 160,000. PA 12,500 Income tax liability 51,500 (covers 20k tax deducted re gift aid payment, 20,000) Higher rate taxp[ayer