littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,017
Likes: 1,835
|
Post by littleoldlady on Aug 13, 2017 11:15:49 GMT
If I pay tax at (marginal) 60% and contribute £1 via GiftAid how much does it cost me net of tax? How much should I increase my contribution by in order that the net cost is £1?
|
|
angrysaveruk
Member of DD Central
binomial
Posts: 995 
Likes: 638
|
Post by angrysaveruk on Aug 13, 2017 12:39:00 GMT
if you pay 60% tax then 40% is the net. So for every 1 pound gross you get 40p net. If you want to donate 1 pound you need to donate 40p if the tax is refunded.
|
|
hazellend
Member of DD Central
Posts: 2,361
Likes: 2,179
|
Post by hazellend on Aug 13, 2017 13:20:15 GMT
You can only reclaim higher rate tax on donations as the basic rate is given to the charity via Gift Aid. So if you donate 1 pound: - Charity gets 20% - You can reclaim the 40% via you tax return. PS, that is some high P2P income you are getting there littleoldlady  |
|
registerme
Member of DD Central
Posts: 6,184
Likes: 5,991
|
Post by registerme on Aug 13, 2017 13:37:23 GMT
littleoldlady just a quick note to say that I've moved this from General P2P Discussion to Chat....
RM
|
|
littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,017
Likes: 1,835
|
Post by littleoldlady on Aug 13, 2017 16:07:44 GMT
Thanks guys. I thought the same but when I tested it out in my on-line return increasing gift-aid by £1000 decreased my tax bill by £500, so it looks as if each £1 actually costs a net 50p.
I wonder if this is due to the fact that although I said I paid tax at 60% actually I pay it at 40% but the personal allowance is being withdrawn by £1 for every £2 over some limit and commentators have said that this is equivalent to a rate of 60%. Maybe this confuses the calculation?
Editing crossed with following post.
|
|
david42
Member of DD Central
Posts: 419
Likes: 346
|
Post by david42 on Aug 13, 2017 18:02:21 GMT
I have summaried the calculation below that shows how a £1,000 gift to charity via gift aid costs a 60% taxpayer £500 and it is worth £1,250 to the charity. What is a 60% taxpayer? The personal allowance tapering rules mean that a taxpayer with an adjusted net income between £100,000 and £123,000 loses 50p of the personal allowance for every £1 of extra income. This creates an effective marginal tax rate of 60% Gift Aid Example £1,000 Taxpayer gift to charity via gift aid £1,250 gross value of the gift because Charity reclaims 20% basic rate tax (=taxpayer gift/0.8) £ 250 Higher rate tax reclaimed by taxpayer (=gross value of gift * 20%) £1,250 reduction in adjusted net income (=gross value of gift) £ 625 increase in personal allowance (=50% of reduction in adjusted net income) £ 250 tax saving from increase in personal allowance (=40% of increase in personal allowance) Reference The attached article explains the interaction of gift aid and the personal allowance tapering rules. link |
|
littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,017
Likes: 1,835
|
Post by littleoldlady on Aug 13, 2017 19:35:16 GMT
Thanks david42 that explains everything.The ability to donate effectively £100 at a cost to me of £40 is too good to resist. |
|
jonno
Member of DD Central
nil satis nisi optimum
Posts: 2,742
Likes: 3,137
|
Post by jonno on Aug 14, 2017 12:00:33 GMT
Thanks david42 that explains everything.The ability to donate effectively £100 at a cost to me of £40 is too good to resist. I'll pm you my bank details 
|
|
littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,017
Likes: 1,835
|
Post by littleoldlady on Aug 14, 2017 13:29:55 GMT
Thanks david42 that explains everything.The ability to donate effectively £100 at a cost to me of £40 is too good to resist. I'll pm you my bank details And your registered charity number please.
|
|
