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The tax benefit of gift aid donations


The gift aid scheme was introduced in October 1990. It enables charities to reclaim basic rate of Income Tax from HMRC on qualifying donations by UK taxpayers. In other words, the donation is treated as being net of basic rate tax. As an example, if a taxpayer makes £10 gift aided donation the charity can claim £2.50 from HM Revenue & Customs (being a gross donation of £12.50 x 20%).

For basic rate taxpayers the tax is correct as the 20% tax relief is obtained automatically by paying only 80% of the gross donation.

However, higher and additional rate taxpayers have only had basic rate relief at source so are then eligible to claim additional tax relief on the difference between the basic rate and their highest rate of tax due.

This is best demonstrated by example:

If you were to donate £500 to charity, the gross value of the donation to the charity is £625. Further tax relief would then be due as follows:

  • £125 if for higher rate (40% taxpayers) (£625 × 20%)

  • £156.25 if you pay tax at the additional rate of 45% (£625 × 25%)

Greater savings are available for those with the top slice of their income in the £100,000 to £125,140 band where £1 of personal allowance is lost for every £2 of income over £100,000. The additional tax relief on a £500 donation would then be £250 (£625 x 40%). Additional savings are also possible for some paying he High Income Benefit Charge, depending on the number of children claimed for and the level of income.

In certain situations taxpayers can carry back charitable donations to the previous tax year. However, a qualifying election can only be made before or at the same time as the previous year’s Self-Assessment return is completed.

Please ensure that you keep and record and let us know about any gift aid donations made to make sure you get the tax relief you are entitled to.

It is also worthy to note that taxpayers who would otherwise not pay tax would incur a tax charge equal to the amount the charity has claimed for any donations made under the gift aid scheme.

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