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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 April 5 2028.
In addition, the income tax additional rate threshold will be reduced from £150,000 to £125,140. As wages rise under inflationary pressure, fiscal drag will bring more of our clients into the income tax net or into the 40 per cent or 45 per cent rate bands.
But what does this have to do with charitable giving?
One consequence of our clients paying more higher/additional rate tax is of course that more higher/additional rate Gift Aid could be reclaimed on their charitable giving.
In addition to the 25p per £1 that a charity can reclaim, a higher/additional rate taxpaying donor can personally reclaim a further 25p/31.25p per £1 through their personal tax return.
Barriers to claiming relief
Yet HMRC’s research shows that only 22 per cent of higher/additional rate taxpaying donors claim this extra relief.
In the author’s experience, there are two major barriers that 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 and do not realise that they should also claim further relief in their own tax return. As advisers, we can help to raise awareness and ensure that our clients’ tax relief does not go unclaimed.
The second barrier is a sense that it is just too complicated to claim the extra relief. Clients who give to multiple charities can struggle to find the records they need. This is where using a giving account such as Stewardship’s Donor Advised Fund really helps.
If your client organises all their one-off and regular giving in a giving account, you and your client can easily track their total charitable giving, without having to collate receipts from multiple recipients or incur the costs and administrative burden of setting up a family charitable foundation.
CGT considerations
The annual exempt amount for capital gains tax will be slashed to £6,000 from April 6 2023 and £3,000 from April 6 2024 onwards.
With the tax burden on asset sales increasing, it is worth considering if your clients could use non-cash assets to fund their charitable giving.
A gift of listed shares or UK property to charity is free of CGT plus 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 is often underutilised.
If your client’s chosen charity is unable to accept a non-cash gift, a donor-advised fund could facilitate the gift and grant the proceeds to the donor’s chosen cause.
The £325,000 tax-free allowance and the additional residence nil-rate band for leaving a family home to descendants have both been frozen until 2028. This means that more estates will come into the scope of inheritance tax.
Charitable legacies are free of IHT and in addition, where (in simple terms) 10 per cent of the net estate is left to charity, the estate benefits from a reduced IHT rate of 36 per cent rather than 40 per cent.
So, if you are advising a charitably minded client who has received a legacy in the past two years, why not discuss if your client would like to consider using a deed of variation to make a qualifying charitable gift?
As well as making a donation in memory of their loved one, your client could benefit from reducing the IHT burden on the estate.
Rachel Steeden is head of legal for the philanthropy services team at Stewardship
