Tax Relief

Tax breaks for Christmas presents are doable – claims for tax breaks are growing | Private finance | Funds

In keeping with the Christmas spirit, and to be less materialistic this holiday season, many households may want to donate to charity instead of traditional gifts. Not only can this act be generous, but it can also result in people claiming money back through tax breaks known as a gift. According to the latest figures from HM Revenue and Customs (HMRC), people who donated to charity have received more than £ 1.7 billion in tax breaks.

Charities can apply to be part of Gift Aid through HMRC and can help reclaim the taxes someone paid as part of their donation.

Once a charity is registered with the tax authority, it gives the taxpayer making the donation a form to sign. This will include an HMRC charity reference number in the future.

Laura Suter, Head of Personal Finance at AJ Bell, explained what the latest HMRC numbers mean in terms of tax breaks.


Ms. Suter said: “The financial bottleneck of the pandemic has not diminished people’s enthusiasm to donate to charities, despite concerns that charities would struggle to raise funds during the crisis.

“While shop closings and events stopped people being able to donate this way, there has been no decrease in the number of people who donated cash or left charities with gifts in their wills.

“Tax breaks claimed for giving money to charity increased in 2020-21 year-over-year, with individuals claiming £ 1.7 billion in tax breaks for good causes.

“Of that, the lion’s share of £ 1.04 billion was claimed in inheritance tax relief as people left money in their wills for good causes.

“This is a 20 percent increase from five years ago, likely a combination of rising asset prices and more people aware of the generous tax breaks that are offered to donate money to charity when you die.

The tax expert found that taxpayers with higher tax rates no longer reclaim their donations at the same rate.

Anyone who pays a higher tax rate than the property tax rate can claim back the difference between the property tax rate paid and the property tax rate on their donation.

This can be done via a self-assessment tax return or by checking with HMRC to see if they can change the tax code.

The government website uses this example: “You are donating £ 100 to a charity – you are calling for Gift Aid to make your £ 125 donation.

“You pay 40 percent tax so you can personally claim back £ 25.00 (£ 125 x 20 percent).

Ms. Suter added, “Last year there was also a slight decrease in the tax reclaimed by higher and higher rate taxpayers through Gift Aid on their donations, giving those taxpayers £ 530 million in tax relief compared to £ 540 million last year.

“The other area that has seen a drop in donations is stock or property giving, with 2019-20 being a record year with $ 130 million in tax breaks.

“By comparison, more normal activity last year is estimated to have been £ 90 million in tax breaks for gifting these assets.”

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