UK charity tax relief receipts remain broadly steady but warning over future donations given cost of living crisis

New data published by HMRC shows that for the tax year ending April 2022 tax reliefs for UK charities and their donors was £5.4 billion which was broadly steady (less than 1% different) compared to the previous year. 

Jodie Barwick-Bell, tax partner at Evelyn Partners comments: “Given the considerable contribution that charities make to society, it’s positive to see that the total value of reported tax reliefs for charities and their donors have remained broadly steady compared to the previous year. This is an important indicator that charities are benefitting from UK donors and can continue to do good work in communities around the world as a result. 

“However, with the cost of living crisis worsening, it’s a concern that those in many professions, such as teachers, will no longer have as much unaccounted for monthly income which could reduce what they can give to charities in the coming year.    

“With soaring inflation and rising energy bills, it’s more important than ever before for those with means to continue giving to charities. As the Chair of a charity helping people impacted by food poverty and financial hardship, I see first-hand why donations and grants are essential in the current climate. We have seen a significant increase in the number of people telling us they have no food, or money to buy any food. The cost of living crisis is really biting and people are absolutely dependent on support from charities to be able to eat and feed their families.

“Although philanthropy and charitable giving is rarely driven by tax reliefs, it is worth individuals considering this given that when individuals donate in the most tax efficient way, charities benefit too. The tax reliefs that are there benefit those on the highest incomes the most – gift aid represents a tax saving of 20p for every £1 donation by a 40% income taxpayer and 25p for every £1 by a 45% income taxpayer. It’s less well known that there can be a CGT saving on gifting assets such as quoted shares to charity. The other main tax relief is IHT when charitable legacies are made on death – saving IHT on the value of the gift as well as reducing the IHT rate from 40% to 36% broadly when 10% of the estate is left to charity on death. 

“It’s interesting to note that this latest update shows that HMRC has increased scrutiny on individual donors claiming gift aid given it put on hold more claims than usual in March 2022 for extra risk assessment.

“Private individuals making significant donations should definitely consider their tax position beforehand as there are some potential pitfalls. For example, if you give to an organisation which is not a charity you are unlikely to get any tax relief but could actually have a tax charge by making the gift. Similarly, if you make a donation and claim gift aid but don’t have sufficient income to “frank” the donation then you could have an unexpected income tax charge.”

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