Tax Avoidance + Charity + new £100k tax rules
Discussion
Having just been on the wrong side of a very painful tax bill and in good knowledge that the government will do its very best to waste what they have taken, can any of you clever accountants clarify how giving money to a worthy cause might lower my tax bill (and actually do some good in this world!).
It looks to me that any money earned in the range of £100k - £116k effectively gets taxed at a rate of 60%
It first gets taxed at 40%, so for the £16k that's £6.4k
You then lose £1 of your tax allowance for every £2 earned over £100k, so that's another 40% of tax on the lost £8100 tax allowance so a further £3240 of tax
So in total, out of that £16k, you pay £9,640 in tax
Lets say you earn £116k, could you give away £16k to charity (thus keeping your tax free allowance) and then claim back the 40% tax on that charitable giving (£6.4k).
If you did this, would that £6.4k that is returned then be seen as income and added to the £100k you stated as earnings (and thus not be so attractive as then your over the $100k mark again and lose some of your tax free allowance)?
How does this work? are my calculations and assumptions correct? It sounds like a good idea (for the same amount of personal loss) being able to give £16k to charity as opposed to the government taking £9.6k in tax and spunking it on some hang wringing, lesbian diversity project.
It looks to me that any money earned in the range of £100k - £116k effectively gets taxed at a rate of 60%
It first gets taxed at 40%, so for the £16k that's £6.4k
You then lose £1 of your tax allowance for every £2 earned over £100k, so that's another 40% of tax on the lost £8100 tax allowance so a further £3240 of tax
So in total, out of that £16k, you pay £9,640 in tax
Lets say you earn £116k, could you give away £16k to charity (thus keeping your tax free allowance) and then claim back the 40% tax on that charitable giving (£6.4k).
If you did this, would that £6.4k that is returned then be seen as income and added to the £100k you stated as earnings (and thus not be so attractive as then your over the $100k mark again and lose some of your tax free allowance)?
How does this work? are my calculations and assumptions correct? It sounds like a good idea (for the same amount of personal loss) being able to give £16k to charity as opposed to the government taking £9.6k in tax and spunking it on some hang wringing, lesbian diversity project.
I'm sure Eric will be along to clarify properly, but my understanding is that (using your numbers) the £16k charitable donation would cost you £7k net.
Assuming that £100k gross leaves you c.£60k after tax, you could either make the contribution and be taxed on £100k to keep £60k net, or not make the contribution and keep £67k, after your extra £9k tax bill.
Assuming that £100k gross leaves you c.£60k after tax, you could either make the contribution and be taxed on £100k to keep £60k net, or not make the contribution and keep £67k, after your extra £9k tax bill.
Yes it is a good idea! I completely agree with you, about giving the money elsewhere, especially if you can't use it up in bussiness expenses etc.
I am always staggered at how little press is given to this heavy taxation band with all the attention given to the 50% band, like yourself, I have had several friends of similar income get huge hikes in their tax bills from previous years as they were not aware or proactive enough. Effectively a 20/40/60/40/50 tax system, not to mention the extra NI you pay aswell!
Quite honestly if your earning that sort of money, 9-10k per month, your literally better off taking a month extra holiday as you would only earn a couple grand extra.. I know what I would prefer and what is better for your general well being!
I am always staggered at how little press is given to this heavy taxation band with all the attention given to the 50% band, like yourself, I have had several friends of similar income get huge hikes in their tax bills from previous years as they were not aware or proactive enough. Effectively a 20/40/60/40/50 tax system, not to mention the extra NI you pay aswell!
Quite honestly if your earning that sort of money, 9-10k per month, your literally better off taking a month extra holiday as you would only earn a couple grand extra.. I know what I would prefer and what is better for your general well being!
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