View the related Tax Guidance about Gift aid
Gifts of cash to charity
Gifts of cash to charityIndividuals receive income tax relief on donations they make to charities. There are three ways in which an individual can obtain income tax relief on cash donations to charity: by gift aid (also known as gift aid relief), by direct deduction from salary under payroll giving and by the retail gift aid scheme.For details of income tax relief available for non-cash donations, see the Gifts of quoted shares and land to charity guidance note.Note that donations to charity are not included in the cap on unlimited income tax reliefs. See the Cap on unlimited income tax reliefs guidance note for more information.Meaning of ‘charity’Donations from 6 April 2010 The definition of charity was significantly altered by FA 2010, extending UK income tax reliefs to charities based overseas in ‘relevant territories’ (ie countries in the European Economic Area). The EEA is comprised of the EU Member States plus Norway, Iceland and Liechtenstein. Although see ‘Repeal of application of gift aid to non-UK charities’ below. The post-5 April 2010 definition of a charity is a body of persons or a trust which:•is established for a charitable purpose only•meets the jurisdictional condition (ie under the jurisdiction of the UK courts or the courts in a relevant territory)•meets the registration condition (ie has complied with any requirement to be included in the register of charities kept under Charities Act 2011, s 30 or with a similar requirement to be included in an equivalent register in a relevant
Gifting cash and assets to charity
Gifting cash and assets to charityThere are a number of tax reliefs available for gifts to charities. This note sets out the UK tax treatment of gifts to organisations established in part of the UK with purposes regarded as charitable under the law of England and Wales. See the Foreign charitable trusts and other foreign charities guidance note for information on gifts to other entities of a charitable nature.Gift aidGift aid is a way for charities or community amateur sports clubs to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate of tax paid by the donor.See the Gifts of cash guidance note in the Personal Tax module for details of the conditions for a qualifying donation and the tax relief available to the individual.Record keepingA charity must maintain evidence to satisfy HMRC that a payment has been made and by whom. For full details of the records to be kept by a charity and the format in which the records may be stored, see the HMRC website.Planning issues for charities Charities should encourage all donors to make use of gift aid. If a charity receives a simple cash gift it should consider contacting the donor to ask whether it would be appropriate to send him a gift aid declaration. The charity can bank the donation in the meantime.Payroll givingPayroll giving (often called 'give as you earn') is a way for employees to make regular payments to charity directly from their salary. People who
Interest in possession trusts ― income tax
Interest in possession trusts ― income taxIntroductionThis guidance note explains how to calculate the income tax liability on the income of an interest in possession trust. It also covers the general principles of income tax that apply to all trusts and identifies the features specific to an interest in possession trust.Trustees together are treated as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time). In order to calculate the income tax liability for any trust, you first have to determine what type of trust it is. It is essential, when dealing with a trust for the first time, to read the trust instrument. As explained in the Taxation of trusts ― introduction guidance note, the income tax treatment will fall into one of two categories:•standard rate tax (bare trusts and all interests in possession), and•trust rate tax (discretionary and accumulation trusts)The nature of a discretionary interest and the income tax treatment is detailed in the Discretionary trusts ― income tax guidance note. Higher trust rates of tax apply to trustees’ accumulated or discretionary income.The income tax treatment of bare trusts is described in the Bare trusts ― income tax and CGT guidance note.An interest in possession is characterised by a beneficiary’s right to the income of a trust as it arises. The income belongs to the beneficiary, and the trustees have no authority to withhold it except to use it for legitimate expenses. The entitlement
Introduction to capital gains tax
Introduction to capital gains taxIn general terms, a charge to capital gains tax arises when a chargeable person makes a chargeable disposal of a chargeable asset. The disposal may produce a profit (known as a gain) or a loss.See Checklist ― calculation of capital gains and losses for issues to consider when reporting client gains and losses.At Spring Budget 2024 the Chancellor announced a change to the rates of CGT for disposals of residential property. From 6 April 2024, the higher rate for gains from residential property are reduced to 24% from 28% so that such gains are taxed at a rate of 18% to the extent that they do not exceed the individual’s unused basic rate band and at 24% to the extent that they exceed the amount of the basic rate band. The rates for carried interest remain 18% and 28%. Chargeable personA chargeable person could be an individual, a trustee, a personal representative or a company, although companies are subject to corporation tax on chargeable gains not capital gains tax. For further discussion, see CG10700 and Simon’s Taxes C1.102. Exempt persons include, amongst others, charities (so long as the gain is applicable and applied for charitable purposes) and local authorities. See CG10760P.Generally, if an individual is resident in the UK in the tax year they are chargeable to tax on capital gains arising in that tax year. See ‘Overseas aspects’ below for a discussion on the taxation of gains on non-resident individuals and those accessing the
Deferral of capital gains via reinvestment
Deferral of capital gains via reinvestmentWhy defer a gain?An individual’s net taxable income and chargeable gains for the tax year influence the rate of tax payable on their capital gains. See the Introduction to capital gains tax guidance note.Depending on the nature of the asset that is subject to disposal, this can result in the individual paying capital gains tax (CGT) at 20% or 28% (reduced to 24% from 6 April 2024 onwards) in tax years where their taxable income and gains exceed the basic rate band, but only 10% or 18% on gains in years where their net income and gains are lower than that band. If a gain is covered by the annual exemption, no CGT is due. See the Introduction to capital gains tax guidance note.The basic rate band is £37,700 for the 2023/24 and 2024/25 tax years, but this may be extended by personal pension contributions or donations to charity via gift aid. See the Proforma income tax calculation guidance note.The annual exemption is £6,000 for 2023/24 and £3,000 for 2024/25. To optimise their CGT position, a taxpayer can reinvest the proceeds from the sale of an asset into the purchase of a qualifying asset and elect for the gain to be rolled into those replacement assets.When the replacement asset is subject to disposal, or possibly where the investment conditions are broken, the deferred gain falls back into charge to CGT. This may be some years after the original gain arose and in many cases,
Cap on unlimited income tax reliefs
Cap on unlimited income tax reliefsIntroductionThe cap on unlimited income tax reliefs applies from 6 April 2013. The cap only applies where the person claims more than £50,000 in reliefs in any one tax year. It acts to limit the relief for the tax year to the greater of:•£50,000•25% of the ‘adjusted total income’ (see below)ITA 2007, s 24A(1)–(5)This guidance note discusses the reliefs which are and are not subject to the cap as well as the operation of the cap. For more on the impact of the cap on claims over multiple tax years, see the Cap on unlimited income tax reliefs ― claims over more than one tax year guidance note. Basis period reform introduces a new element of total income, transition profits arising in 2023/24 including those taxed in any of the four subsequent tax years due to spreading relief. Transition profits are included in total income as a separate component.See the Tax year basis from 2024/25 onwards and Basis period transition rules 2023/24 guidance notes.Reliefs included in the capIn terms of the policy rationale as to which reliefs were to be included in the cap, the following general rules were applied:•it needed to be a relief against general income (ie a Step 2 deduction for the purposes of ITA 2007, s 23, see the Proforma income tax calculation guidance note), and•the relief must not have been capped prior to the introduction of these rulesHowever, interested parties successfully lobbied to ensure that
Trading subsidiaries of charities
Trading subsidiaries of charitiesIntroduction to trading subsidiariesA 'trading subsidiary' is a company owned and controlled by a charity, or occasionally several charities, which has been incorporated in order to carry on a trade or business which:•the charity cannot itself carry on due to constitutional restrictions or concerns about business risk and potential liabilities, and / or•the charity cannot carry on in a tax-efficient mannerA trading subsidiary is usually set up to generate income for the charity or charities, as the subsidiary does not have the restrictions to its trading activities that charities have.A trading subsidiary can be used to:•carry out non-primary purposes trading beyond the limits of the small scale exemption (see the Tax treatment of the charity guidance note)•protect a charity’s assets from the risks of tradingIf the subsidiary company gives all or part of its profits to the charity (in place of a dividend) then it will not pay tax on those profits, see the Gifting cash and assets to charity guidance note.Trading subsidiaries are not cheap to run and generate additional bureaucracy and complexity and so should not be created without proper consideration of their merits and disadvantages.Setting up a trading subsidiaryIf a charity wants to set up a trading subsidiary it will need to:•create a company•provide it with trading capital (see below)•consider how the charity's assets can be made available to the company (see below)•ensure that the company gives profits, which would otherwise be taxed, to the
Foreign charitable trusts and other foreign charities
Foreign charitable trusts and other foreign charitiesIntroduction to foreign charitiesThis guidance note sets out the UK tax treatment of non-UK trusts and other entities of a charitable nature, and of gifts to such entities.For convenience, the term 'foreign charity' has been used throughout the note to mean any entity of a charitable nature which is not subject to the jurisdiction of the UK courts and cannot, therefore, qualify as a 'charity' for the purposes of the charity law of any part of the UK. The question of whether an entity of a charitable nature is subject to the jurisdiction of the English courts is discussed in the What is a charity? guidance note.The following note is concerned only with entities that do not qualify as 'charities' under these rules, because they are not subject to the jurisdiction of the courts of any part of the UK.No attempt has been made here to discuss the differences between the laws applicable to foreign charities and the different meanings of 'charity' in other countries.Meaning of 'charity' for UK tax purposes before 15 March 2023Historically, ‘charity’ was defined in the UK tax legislation to mean a body or trust established for charitable purposes only. The legislation did not, on the face of it, say anything about where a charity must be established to qualify as such. Nor did it expressly state which law applies to determine whether the purposes of the body or trust are exclusively charitable. However, it was determined in Camille
A–Z of payroll
A–Z of payrollUnderstanding payroll terminology and establishing the correct tax and NIC treatment of paymentsThis note provides an alphabetical summary list of many of the common terms encountered by those operating a payroll. It also provides appropriate signposting, showing where additional guidance may be found Additional published official guidance, includes HMRC’s CWG2 further guide to PAYE and National Insurance contributions, which summarises the department’s technical views of how most payments should be treated.For additional reading on payroll matters, please refer to Simon’s Taxes, division E4.11.For new or smaller employers the Employer obligations for those running a small payroll guidance note may also be of use.Navigation tip: press ‘Ctrl + F’ to search for a particular term within the table.Payroll term or paymentFurther detailsReferencesAAbsences ― holiday payAn employer has a statutory obligation to pay holiday pay, and the general expectation is that this should be made at the employee’s normal pay rate. The statutory minimum in the UK is 5.6 weeks holiday pay per year, including bank holidays (pro-rated for part time staff). However employees may have additional rights, eg under their employment contract Holiday pay ― legal pointsAbsences ― statutory payments, maternity pay, paternity pay, adoption pay, shared parental leave pay and parental bereavement pay (SMP, SPP, SAP, SSPP and SPBP)An employer is obliged to make statutory payments to employees, if they fall within certain qualifying criteria covering parenthood or child bereavement. All statutory payments are paid
Taxation of savings income
Taxation of savings incomeSavings income includes interest, profits from deeply discounted securities, accrued income profits and chargeable event gains.Savings income is taxed after non-savings income but before dividend income. There are four possible rates of tax applying to savings income from 2015/16 onwards: 0%; 20%; 40%; or 45%.Note that the Scottish and Welsh income tax rates only apply to the non-savings non-dividend income (commonly referred to in practice as non-savings income) of Scottish or Welsh taxpayers. As far as the savings income of Scottish and Welsh taxpayers is concerned, it is the UK tax bands and rates that apply. For the definition of Scottish and Welsh taxpayers, see the Proforma income tax calculation guidance note.When is savings income taxable?Whether savings income is taxable in the UK depends on the circumstances of the individual and whether the income is paid by a UK resident or non-resident payer.An individual who is resident and domiciled or deemed domiciled in the UK is taxable on his worldwide income (and gains) in the tax year in which these are received and should declare these on his tax return. See the Residence ― overview and Domicile guidance notes for detail on these terms.Individuals who are not domiciled or deemed domiciled in the UK are eligible to access the remittance basis of assessment. The effect of the remittance basis is that the individual is only taxable on his foreign income to the extent that these are remitted (brought) to the UK. The remittance basis only affects
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