New figures from HM Revenue & Customs (HMRC) have revealed that wealthy taxpayers are claiming record amounts of tax relief on charitable gifts.
A report by HMRC has revealed that almost £1.2 billion in revenue was wiped off the books last year by the well-off contributing to charity, more than double the amount of charitable tax relief claimed in 2008-2009.
The rapid growth in higher rate relief on Gift Aid donations accounted for almost half of the estimated £100m increase in tax reliefs claimed in 2014-15.
The relief allows higher wage earners to claim the difference between their marginal income tax rate and the basic (20 per cent) rate on giving – enabling more than £470m to be saved by wealthy tax payers during the last year.
As an example, a Gift Aid donation of £200, worth £250 to the charity, would deliver a tax rebate of £50 to donors who pay income tax at 40 per cent.
HMRC has attributed the increase in higher rate relief claims over the past decade to the growth in the number of higher rate taxpayers and the introduction of the “additional” income tax band in 2010.
Gifts on death still represent the majority of tax relief offered to individuals, according to HMRC’s report, with more than £630m claimed in inheritance tax (IHT) relief during 2014.
This is unsurprising considering the tax savings available. IHT rules state that if at least 10 per cent of an estates value, after all other reliefs, debts and taxes are removed, is given away to charitable causes a lower rate of 36 per cent (instead of 40 per cent) is applied to the estates remaining assets.
This has been a boom for charities that have benefitted from these larger cash donations at a time when the growth in other donations has slowed.