Making the Most of Additional Rate Tax Relief

UPDATE 3 OCTOBER 2022: The Government has reversed the planned abolition of the additional rate of income tax.  If you pay income tax at 45%, you will continue to benefit from income tax relief at the current rates on gifts of property or shares, as well as Gift Aid relief on cash gifts at the difference between the additional and basic rates of income tax.

Following the Government’s announcement that the 45% top rate of income tax* will be scrapped from 6th April 2023, now is a great time for additional rate taxpayers to consider making major gifts. By making your gift this tax year, you may benefit from more tax relief and so be able to give even more in support of your favourite causes.

Until 5th April 2023, you can benefit from income tax relief at 45% on gifts of listed shares and real property, as a well as a capital gains tax exemption. If you give cash, the charity can claim back £25 Gift Aid per £100 and you can reclaim a further £31.25 per £100 in your tax return. 

From 6th April 2023, the value of these reliefs will fall. The maximum rate of relief on gifts of listed shares or real property will be 40% and your personal Gift Aid reclaim will be £25.93 per £100 given. 

Additional Rate Tax Relief Examples

An additional rate tax payer makes a charitable gift of listed shares worth £10,000. The donor can deduct the value of the shares from their taxable income for that year. Until 5th April 2023, this income tax relief is worth £4,500 (45% of £10,000), so the £10,000 gift effectively costs the donor £5,500. From 6th April 2023, this income tax relief will only be worth £4,000 (40% of £10,000) and so the £10,000 gift effectively costs the donor £6,000. 

An additional rate taxpayer makes a cash gift of £10,000 under Gift Aid.  Until 5th April 2023, the charity can reclaim basic rate Gift Aid of £2,500 and the donor can reclaim £3,125 in their tax return.  So the charity receives £12,500 and the gift costs the donor £6,875.  From 6th April 2023, the charity can reclaim basic rate Gift Aid and Gift Aid Transitional Relief totalling £2,500 and the donor can reclaim £2,593 in their tax return.  So the charity receives £12,500 and the gift costs the donor £7,407.

If you’re able to do so, you might therefore want to consider bringing forward your planned giving into the current tax year while the additional rates of relief are still available. 

By making your gift into a Donor Advised Fund or Philanthropy Fund with Stewardship, you can secure your tax relief in the current tax year and then take the time you need to develop your giving strategy with our support; you can request gifts out of that fund to causes you care about later on, even over a period of years.

Contact the team 

If you’d like to arrange an additional gift, please contact our Philanthropy team on 020 8418 8896 or [email protected]. 

*Additional rate income tax of 45% currently applies to those earning over £150,000; higher rate income tax of 40% to taxable incomes of £50,271-£150,000. In the recent mini Budget, the Government announced it will be scrapping the additional rate bracket from 6th April 2023. 

Stewardship may provide general guidance about charitable giving for information purposes only. We do not offer tax, legal or investment advice and you are encouraged to seek advice from a qualified professional on your specific situation.