littleoldlady
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Post by littleoldlady on Jun 5, 2017 14:12:13 GMT
Even though I don't earn enough to pay 45% income tax I find I am nevertheless taxed at 60%!. How can that be fair?
Anyway, looking to reduce my tax bill by increasing my contributions to charity. When I was a 40% payer I got 20% back on my contributions. The government site says:
"If you pay tax at the higher or additional rate, you can claim the difference between the rate you pay and basic rate on your donation"
So do I now get 40% back, being the difference between basic rate and 60%? I frankly doubt it, as the 60% is an effective rate caused by the graduated withdrawal of the personal allowance rather than an "official" rate. Can anyone show an example calculation of the difference in tax paid with no charitable donation and,say, £1000?
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skippyonspeed
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Post by skippyonspeed on Jun 5, 2017 15:31:46 GMT
It may be worth paying an accountant to look into your problems and filing your tax returns
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Post by bracknellboy on Jun 5, 2017 15:50:20 GMT
I looked into this previously and concluded - rightly or wrongly - that the relief was at the effective marginal rate (minus the basic rate claimed by the charity) even in the situation where you are in the "60% trap" (i.e. cause by withdrawl of the allowance). If you scroll down the following article to the bit about 'Give it Away', it covers it. I was at one point looking into this to see whether accelerating/pulling forward regular charitable donations that I would expect to make in future years i.e. do them in an early year instead would make sense. www.ft.com/content/622ff86c-d16e-11e5-92a1-c5e23ef99c77 |
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littleoldlady
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Post by littleoldlady on Jun 5, 2017 16:19:31 GMT
A sub is required to read the FT, but I found: www.stewardship.org.uk/resources/briefing-papersSelect Charity Tax tab and the paper about 2/3 down which says that I would get 50% (yes 50% don't ask me why*) back of any donation. Edit * I think this is 40% of the donation x 1.25. Edit corrected link |
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littleoldlady
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Post by littleoldlady on Jun 6, 2017 14:42:33 GMT
I played around with my on-line tax return and found that increasing my charitable donation by £1000 only reduced my tax bill by £250, not the £500 that Stewardship suggest in the link in the post above. So either Stewardship (and I suppose the FT although I could not read that article) are wrong or the on-line calculator does not work. The reason is that the reduction in the personal allowance is done first, without any reference to charity, then the charity amount is added to the upper limit of the 20% band thus I pay more at 20% instead of 40% so saving 20% of the donation *1.25.
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ilmoro
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Tax help
Jun 6, 2017 18:18:32 GMT
via mobile
Post by ilmoro on Jun 6, 2017 18:18:32 GMT
littleoldlady To read the FT article click on the link, nite key terms in title which is visible and google them ... should get you round registration wall ... or just register and read for frer
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Jun 6, 2017 18:19:17 GMT
littleoldlady To read the FT article click on the link, note key terms in title which is visible and google them ... should get you round registration wall ... or just register and read for frer
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Post by bracknellboy on Jun 6, 2017 18:45:56 GMT
Which is exactly how I found it in the first place: I don't have a sub to the ft.
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littleoldlady
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Post by littleoldlady on Jun 7, 2017 7:28:02 GMT
littleoldlady To read the FT article click on the link, note key terms in title which is visible and google them ... should get you round registration wall ... or just register and read for frer Thanks. Neat trick. Well that article is quite clear, but if it is correct then the Self Assessment system is not working which seems unlikely as this trap was introduced several years ago. I have written to HMRC and will post here if I ever get a reply
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pip
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Post by pip on Jun 7, 2017 16:53:27 GMT
1) Gift aid raises your higher rate tax band by the amount of the donation, hence giving you 20% tax relief on that amount.
2) Gift aid also reduces you adjusted net income used to calculate your income over £100k over which your personal allowance reduces by £1 for every £2, to a maximum of zero when your adjusted net income is over £123k.
(2) is therefore only of value if before the gift you have an adjusted net income of at least £100k and the gift reduces your net income to a level below £123k.
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littleoldlady
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Post by littleoldlady on Jun 7, 2017 20:12:42 GMT
Yes I have finally worked out how they do it. It is most confusing. They add up total income without taking account of gift aid and then subtract a reduced personal allowance which is calculated 11000 - (income - 100000 - giftaid*1.25)/2 [provided, I suppose, that the result is less than 11000] but they don't show how they arrived at the reduced figure.
Anyway, I will confidently increase my gift-aid this year.
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