Personal tax relief, gift aid, personal pensions, and you

When we talk about personal tax relief, many people only know the basics. They know that tax relief means that less tax is paid if you’ve spent money in specific ways, like business expenses. They know that tax relief means tax is given back to you or repaid in another way, such as into a personal pension. But what are the specifics? How does it work if Gift Aid is involved? Let’s break it down:

Gift Aid

Donating through Gift Aid means you get tax relief when you donate to charities or other similar organisations such as community amateur sports clubs. These groups can claim an extra 25p for every £1 you give at no additional cost to the donor. To benefit from this tax relief, you need to make a Gift Aid declaration for the charity to claim. The charity or club will provide a form which will state that you:

• Have paid the same amount or more in income tax or capital gains tax in the same tax year
• Gift Aid is being claimed
• You must keep a record of declarations for 6 years after the most recent donation you claimed Gift Aid on
• They must also have an HMRC charity reference number which the organisation can provide.

If the organisation gets back more tax than you’ve paid, HM Revenue & Customs (HMRC) may ask you to pay more tax as to cover the difference. If you are a higher-rate tax payer, you can claim back the difference between the tax you’ve paid on the donation and what the charity received back if you fill in a Self Assessment Tax Return form or ask HMRC to amend your tax code. Please let us know if you have made charitable donations under gift aid and we can ensure that tax relief is maximised.

How to get Gift Aid Tax Relief earlier

In your Self Assessment tax return (SATR), you typically report things from the previous tax year. Instead, with Gift Aid, you can also claim tax relief on donations you make in the current tax year, before the date you submit your return, if you either want the tax relief sooner or will not pay as high a rate of tax as you did last year.

However, you will not qualify for earlier tax relief if you miss the SATR deadline which is 31 January.

Personal Pensions

You can receive tax relief on private pension contributions worth up to and including 100% of your annual earnings. If you make personal pension contributions manually and not by way of payroll deduction, you may qualify for higher and additional rate tax relief. You should ensure these contributions are included in your personal tax return and tax refunds may be available.

It is also important that tax relief on personal pension contributions in maximised in cases where automatic enrolment contributions are made via your payroll. If your employer applies a “relief at source” pension scheme, you will only be given basic rate tax relief via the payroll. Higher and additional rate taxpayers on this scheme should therefore ensure they include the contributions on their tax returns in order to benefit from the additional relief.

If you are unsure as to the type of pension scheme applied by your employer, we can review this to ensure tax relief is maximised where possible.

It is worth noting that pension contributions are subject to annual limits and tax charges can arise when these are exceeded. We can review this too.

How can we help?

We can help you understand how your personal tax relief currently works and how to get the best outcome from your unique situation. Get in touch with us to find out more about what we can do to help you.