Thawing the tax threshold freeze with tax-efficient giving
The Chancellor announced in his Autumn Statement that the income tax Personal Allowance and the basic rate limit, which had not increased since April 2021, would be frozen at £12,570 and £37,700 respectively until 5 April 2028. While this might sound trivial, in fact it represents a significant tax rise through ‘fiscal drag’. As wages are pushed up by inflation, more of us will be dragged into the income tax net for the first time or find ourselves paying tax at the 40% rate.
But what does this have to do with charitable giving?
More higher rate Gift Aid will be available – but it needs to be claimed!
The flip side of more higher rate tax being paid is of course that more higher rate Gift Aid could be reclaimed on charitable giving. In addition to the 25p per £1 which a charity can reclaim, a higher rate taxpaying donor can personally reclaim a further 25p per £1 through their tax return. Yet HMRC’s research¹ shows that only 22% of higher or additional rate taxpaying donors claim this extra relief.
In our experience, there are two major barriers which prevent donors from claiming this extra relief: the first is a lack of knowledge – donors sometimes assume they have dealt with the issue by making a Gift Aid declaration not realising that they should also claim further relief in their own tax return. With a lot more of us about to become higher rate taxpayers, we need to publicise this relief more effectively. If you are a Church Treasurer or Charity Trustee, why not consider how you could help to inform your donors about higher rate Gift Aid relief?
The second barrier is the perception that it is just too complicated to claim the extra relief. This is where a Stewardship Donor Advised Fund really helps. If you organise all your one-off and regular giving with Stewardship, you can easily track your total charitable giving for your tax return, without having to collate receipts from multiple recipients.
Capital Gains Tax allowance reduced by 76% – time to consider non-cash giving?
At present, an individual selling assets such as shares or a second property pays no capital gains tax on the first £12,300 of their gain. This annual exempt amount will be slashed to £6,000 from 6 April 2023 and £3,000 from 6 April 2024 onwards.
With the tax burden on asset sales increasing, donors could consider using non-cash assets to fund their charitable giving. A gift of qualifying shares or property to charity is free of capital gains tax and in addition the donor can deduct the market value of the asset from their taxable income, achieving income tax relief at the donor’s marginal tax rate. This is a very generous relief which again is often underutilised. Our blog on non-cash giving explains how it works in more detail.
Stewardship is pleased to facilitate gifts of shares listed on any major stock exchange and of UK property or land.
Are you impacted by any of these changes?
If you are affected by any of these updates and would like more information or help, please get in touch.
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