Important news for UK tax payers!

Recent changes to the UK tax law 

On 6th April this year, a new top tax rate of 50% (for those earning over £150,000 per annum) was introduced. Although many of you will have been aware of this, you might not have realised that people with personal incomes between £100,000 and £112,950 will effectively be taxed at 60%, as the basic annual personal tax allowance permitted for an individual is gradually withdrawn for those earning over £100,000. For every £2 they are over this limit, high earners will have their tax-free allowance reduced by £1, meaning that, as the current allowance stands at £6,475 for the 2010/11 tax year, those with an income of £112,950 or above will receive nothing.

Why should this encourage people to give to charity?

These changes provide real benefits to anyone with a higher rate income who wants to give money to charitable organisations, such as the Latymer Foundation. Although the value of a donation from a basic rate taxpayer (£6,475-£43,875) will remain the same, these gifts can still be increased by 28% if they adopt the simple and effective Gift Aid scheme. Furthermore, as the level of pension contribution that many higher-rate taxpayers are allowed is now also being restricted, Gift Aid donations are one of the few remaining ways of reducing taxable incomes (and therefore tax liabilities) for those with high incomes.

However, there are still ways that those in the top tax band stand to gain. This is because higher-rate taxpayers can personally reclaim the difference between the 20% basic tax rate and the 40% or 50% (depending on their level of income) that they pay. These donors can then choose either to keep this money or re-gift it to the charity.

For example, before 6th April, a £100 donation from a higher-rate taxpayer who decided to Gift Aid their donation and re-gift all the reclaimed tax would have been worth £160.25 to the chosen charity. Under the new rules, the same gift would now be valued at £176.28.

For more information, please contact a professional tax advisor who can advise you on your personal tax situation.