Gifting shares to charity -- income tax relief at 40 per cent or is it?

Section 43, Finance Act 2000 details the new income tax relief available by gifting quoted shares to charity given in addition to the existing capital gains tax relief. Income tax relief is given by making a deduction against total income equivalent to the market value of the shares at the date of gift. This seems generous and there has been much publicity about the 40 per cent income tax saving that can be achieved by higher rate taxpayers. However, as the following example indicates, care must be exercised before concluding that donors will necessarily get relief at 40 per cent notwithstanding that they may have sufficient income chargeable at higher rate tax to cover the value of the gift. This is because the tax relief is significantly reduced where the donor's income relates mainly to dividend income as shown below:

Example
Pension 4,385
Dividends 150,000
154,385
Less: personal allowance 4,385
Taxable income 150,000

Tax due
1,520 x 10% 152
26,880 x 10% 2,688
121,600 x 32.5% 39,520
42,360
Less: tax credits on dividends 15,000
27,360

If this taxpayer makes a gift of quoted shares with a value of £100,000 to charity and claims income tax relief for the gift, the taxable income will be reduced to £50,000 and the tax due will be:

£1,520 x 10% 152
£26,880 x 10% 2,688
£21,600 x £32.5% 7,020
9,860
Less tax credits
on dividends 5000
£4,860

The gift of shares to a value of £100,000 has therefore produced tax relief of £22,500, being 22.5 per cent relief. This is because the donor's dividend income is only effectively taxed at 32.5 per cent (and the 10 per cent tax credit is not repayable) so that the tax relief on the gift is 22.5 per cent.
Ms Sarah Axe ATII,
Cooper-Parry,
Nottingham.

 

Issue: 3784 / Categories: