[1eyedjack]

This won't mean anything to anyone outside of the UK tax and accountancy business, but I have just come up with a scenario that provides tax relief at a rate of 16000% on a charitable donation, and I am so bored I thought I would share it before I get run over by a bus.

Wife has no income (yeah, sexist!) and elects for 10% of her £11K personal allowance to be transferred to her husband, in the expectation that he will be a basic rate taxpayer (a necessary condition for the transfer).
Husband's only tax return entries are salary and a bit of bank interest. In 2016-17 his salary falls short of the basic rate tax limit by £999. Sadly his bank interest is £1002, pushing him into the higher rate tax bracket by £1.
Apart from the failure of wife's election, another consequence of this is that £502 of the bank interest is taxable, £500 is exempt.

In 2017-18 he gifts £2 to a charity, before submitting his 2017-18 tax return. I think that £1 would have been sufficient, but let's not be greedy.

When he submits his 2017-18 tax return he elects as permitted for the £2 payment to be relieved in the previous year. His income for the previous year thereby falls to £1 below the basic rate limit, which has two consequences:
1) He gets the benefit of £1100 personal allowance from his wife, and
2) He gets an extra £500 exemption from his bank interest.

16000% tax relief on £2 payment to charity. Yay! Go, Wonga!

[blackshoe]

Write a complicated tax law, and someone will find a way to game it. I'm sure there are others.

[PhantomSac]

That's what I call charity!

[onoway]

Many of the references are British but the rant is likely just as appropriate for Canada and the US. https://www.youtube....h?v=m2q-Csk-ktc

[1eyedjack]

onoway, on 2016-March-02, 18:07, said:

Many of the references are British but the rant is likely just as appropriate for Canada and the US. https://www.youtube....h?v=m2q-Csk-ktc

Anyone in the UK who wants to watch it (and it is worth it) will have to do it through their VPN, and log into a foreign server.

[jallerton]

1eyedjack, on 2016-February-18, 08:55, said:

This won't mean anything to anyone outside of the UK tax and accountancy business, but I have just come up with a scenario that provides tax relief at a rate of 16000% on a charitable donation, and I am so bored I thought I would share it before I get run over by a bus.

Wife has no income (yeah, sexist!) and elects for 10% of her £11K personal allowance to be transferred to her husband, in the expectation that he will be a basic rate taxpayer (a necessary condition for the transfer).
Husband's only tax return entries are salary and a bit of bank interest. In 2016-17 his salary falls short of the basic rate tax limit by £999. Sadly his bank interest is £1002, pushing him into the higher rate tax bracket by £1.
Apart from the failure of wife's election, another consequence of this is that £502 of the bank interest is taxable, £500 is exempt.

In 2017-18 he gifts £2 to a charity, before submitting his 2017-18 tax return. I think that £1 would have been sufficient, but let's not be greedy.

When he submits his 2017-18 tax return he elects as permitted for the £2 payment to be relieved in the previous year. His income for the previous year thereby falls to £1 below the basic rate limit, which has two consequences:
1) He gets the benefit of £1100 personal allowance from his wife, and
2) He gets an extra £500 exemption from his bank interest.

16000% tax relief on £2 payment to charity. Yay! Go, Wonga!

I can do much better than 16,000%.

A taxpayer defers their state pension (entitlement) of £150 per week and then after 5 years elects to take the back pension as a lump sum. The lump sum accrued is £39,000 and with interest this might go up to say £41,500. This lump sum is taxable at a flat rate percentage in the year of receipt; the flat rate percentage is determined by taking the highest tax rate payable on the taxpayer's other net income for the year (excluding the lump sum). The highest tax rate could be any of 0%, 20%, 40% or 45%. If the taxpayer's other income happens to be on one of the first two borderlines then he can save tax of £8,300 (20% of £41,500) with a £1 charitable donation. In fact 50p would be sufficient as it would round up to the nearest pound, bring the tax relief up to 1,660,000%!

[1eyedjack]

Thanks for sharing. Yes I was focusing on new rules.

It is of course necessary to survive the 5 years in your example but yes eye-watering. I wonder whether you should be making some allowance for the tax that would have been paid on the pension had it not been deferred?