Charities could see boost from flurry of pre-budget deals

The weeks and months leading up to the Autumn Budget 2024 saw a flurry of activity, as individuals rushed to sell assets ahead of a strongly rumoured capital gains tax (CGT) rate rise. With transactions being completed right up until the last minute before 30 October 2024, driven by a desire to lock in gains with certainty of  tax rates, the stage is set for a significant increase in forecasted for the current tax year. Based on the , that could be over £6bn more than the CGT receipts for the year to 31 March 2025, potentially over 45% higher.

If there is an initial trend we are seeing in the first couple of weeks of the 2025/26 tax year, it is that individuals who have triggered large gains are keen to understand their tax liability due on 31 January 2026, perhaps driven in part by the economic uncertainty for the year ahead. Some taxpayers are already focusing on submitting their 2024/25 tax return early, well in advance of the 31 January deadline. Such a proactive approach can help to ensure accurate calculations of CGT and other tax liabilities and allows individuals to set aside sufficient funds to meet their obligations. The current volatility in the stock market is likely to be a factor behind this for some, as they look to ensure sufficient funds are held in less risky investments to cover any tax due.

Filing tax returns early can offer additional benefits which are sometimes overlooked, such as bringing forward the HMRC enquiry window. The enquiry window is typically 12 months from the date the return is submitted and represents the period during which HMRC can start an enquiry into a tax return. By filing early, taxpayers can accelerate this period of uncertainty and some taxpayers may be keen to get this out of the way as soon as possible, particularly if they have been involved in a large transaction.

Whilst an early tax return submission might be appealing to some this year, it is important that it does not come at the cost of an important tax relief. In particular, when there is a bumper year of disposals triggering CGT, there may also be a corresponding increase in charitable donations and claims for gift aid. 

Some might consider it unusual for an individual to sell a business for a substantial sum and immediately seek to give some of this away. However, philanthropy is increasingly forming part of the conversation immediately after a transaction and failing to consider it at that point could prove to be very costly to both the individual and the charity. 

For example, take an individual who has sold their business for a gain of £5m immediately before the Autumn Budget 2024 and has an income which fully utilises their basic rate income tax band. For simplicity, let’s assume a 20% tax rate applied to this and the CGT payable is £1m. Even though we are now in the 2025/26 tax year, it is possible to make a charitable donation to reduce their 2024/25 tax liability, ie the year in which the £1m CGT liability has arisen. 

Let’s then assume the individual makes a donation to a qualifying charity of £1m in the first few months of the 2025/26 tax year. By carrying back the 2025/26 gift aid claim to the 2024/25 tax year, the individual taxpayer can claim tax relief of £125,000, as the gift would reduce the amount of gains taxed at higher rates. In addition, the charity would be able to receive gift aid on the donation and effectively gross up the donation to £1.25m. 

The actual amount of tax relief available to the individual will depend on factors such as their taxable income for the year, their total tax liability for the year, and whether the gain qualified for relief, such as business asset disposal relief. Individuals contemplating significant charitable gifts should ensure that they obtain appropriate tax advice before making a gift. 

Timing of donations can be crucial for a successful claim for gift aid. If it is made too late then the taxpayer may not have paid sufficient tax to cover the gift aid claimed by the charity, potentially leading to a higher personal tax bill. In order to successfully carry back a gift aid donation to the 2024/25 tax year, a donation and claim must be made by the earlier of 31 January 2026 or the date the individual’s tax return is submitted. 

So, whilst the immediate focus for some taxpayers is ensuring sufficient funds are available to settle their CGT liabilities due on 31 January 2026, it could prove a costly mistake to rush the submission of a return. There will be many charities hoping that they might benefit from the recent flurry of transactions, but they may be reliant on the relevant taxpayers being aware of an arguably niche set of rules.