Briefing Notes – Charitable Giving the New Rules

Tax | Prager Metis | Mar 30, 2017

There are many wonderful individuals in the UK who give generously to charities. Usually, individuals make a very simple calculation about their income, ‘how much do I need to retain to meet my own needs and how much can I afford to give to charity.’ This simple calculation has just become a lot more difficult for some people especially where a substantial amount of their income derives from dividends. The new tax regime for dividends can have a negative impact on individuals. The altruistic instinct may not be compromised by the new tax rules but individuals may want to check that their generosity does not compromise the income they need to meet their living needs.

The new dividend regime can increase the taxation of a charitable giver. The loss of the tax credit to discharge an individual’s basic rate tax liability no longer operates, instead, the uplifted amount of tax on dividends will become payable.

Below is a link to an illustration of how the old and new rules work. In the first example, the amount of basic rate tax £83,715 exceeds the basic rate tax at £80,000 on the donation. In the second example, the basic rate tax of £54,125 does not exceed the basic rate on the donation and the tax is increased to £80,000. The amount left for the individual for personal use after tax and donation decreases from £78,184 to £20,000, a big difference.

Where there is charitable giving and dividend income it would be prudent to ensure that the giver is made fully aware of the actual cost which will include the amount donated and any tax increases arising from the donation.

If you require further information please do contact either Simon Winters or Arvinder Matharu.

Click here for the illustration.