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Gift Aid is a government initiative that allows UK taxpayers to increase the value of their donations to charities at no extra cost to themselves. Through gift aid tax relief, donors can increase the value of their contributions without spending more.
By declaring gift aid, you allow the charity to claim back the tax, whilst you may also benefit from tax relief on your own tax return, making your generosity even more rewarding. So, it is a win-win on both sides! Learn how Gift Aid works and how to make the most of its tax relief.
What is Gift Aid?
Gift Aid is a powerful scheme that lets UK taxpayers boost their donations to charity at no extra cost. When you donate to a charity, they can claim back 25p for every £1 you give, thanks to the tax you have already paid.
The tax relief is on the charity’s side, but it makes your donation much more valuable. All you need to do is let the charity know you are a taxpayer, and they will take care of the rest. Gift Aid benefits both you and the charities you support—helping them raise more funds whilst giving you a simple way to make a bigger impact.
Who Qualifies for Gift Aid?
If you are a taxpayer in the UK, you are eligible to claim Gift Aid on your donations. But how do you know for sure? Here is the simple breakdown:
- You need to pay enough tax (income tax or capital gains tax) to cover the amount that the charity will claim on your donation. In other words, if you donate £10, you must pay at least £2.50 in tax for the charity to claim that 25p for every £1 donated.
- If you are donating from your salary, pension, or savings and pay tax on that income, you are good to go!
- The donation can be one-off or regular, and it can be made in cash, by bank transfer, or even by cheque.
Gift Aid Tax Relief Explained
The gift aid tax relief scheme benefits both the donor and the charity. For donors, it is an easy way to make a bigger impact on the causes you care about, whilst charities get to raise more funds without asking for more from you.
Important Note: When an individual makes a Gift Aid declaration, they are essentially stating that they will have paid enough tax during the year to cover the 20% tax that the charity will reclaim from HMRC. If it turns out that the individual has not paid enough tax, they will be responsible for making good the tax claimed. So, they may have to pay the difference to HMRC.
Additional Tax Benefits for Higher-Rate Taxpayers
Gift Aid also provides tax advantages for higher-rate taxpayers. Whilst basic-rate taxpayers do not need to do anything beyond confirming Gift Aid eligibility, higher-rate taxpayers (40% or 45%) can claim back some of the tax they have paid on their donations. This is done through Self-Assessment tax returns.
For example, if you donate £100, the charity receives £125 (thanks to the extra 25% from Gift Aid), and you can claim back a portion of the tax paid on the gross donation, which reduces your overall tax bill.
What is Gift Aid Carry Back
Gift Aid offers a unique Carry Back option, which allows you to apply donations made in the current tax year to the previous year’s tax return. This can be useful if you want to reduce your tax liability for the previous year, provided you make the claim before the Self-Assessment deadline (31 January).
Donor Benefits Beyond Donation
Gift Aid can also benefit you as a donor, especially if you are a higher-rate taxpayer. If you pay tax at 40% or 45%, you can claim back the difference between the basic tax rate (20%) and your tax rate on your Self-Assessment tax return.
For example, with a £100 donation, a 40% taxpayer could reclaim £25 in tax relief, whilst the charity still receives an additional £25, resulting in a more impactful donation.
How to Claim Tax Relief on Charitable Donations in the UK
Claiming tax relief on charitable donations in the UK is straightforward and depends on your tax rate and donation type:
For Basic Rate Taxpayers:
- If you are a basic-rate taxpayer (20%), simply confirm that your donation qualifies for Gift Aid when donating. The charity will claim the tax relief directly from HMRC, boosting your donation by 25% without further steps on your part.
For Higher-Rate (40%) and Additional-Rate (45%) Taxpayers:
- You can claim by listing your donations on your Self Assessment tax return. This allows you to reclaim the difference between the basic rate (20%) and your tax rate on the gross donation amount. For example, if you donate £100, the charity receives £125, and you can reclaim an additional £25 if you are a 40% taxpayer.
- Adjust Your Tax Code: If you pay through PAYE and do not file a tax return, you can contact HMRC to adjust your tax code. This way, the relief is applied to your monthly or yearly income.
Learn more tax saving tips for higher-rate taxpayers and other tax-efficient giving strategies!
Claiming on Inheritance Tax:
- To claim gift aid on inheritance tax, ensure your will specifies the donation amount or percentage, as your estate will benefit from the reduced tax burden.
If You Do Not Usually File a Tax Return:
- You can still claim relief by contacting HMRC directly. Provide donation details, and they will calculate the relief for you.
By claiming this tax relief, your donations have a greater impact whilst offering personal tax benefits.
Gift Aid Small Donations Scheme (GASDS)
The Gift Aid Small Donations Scheme (GASDS) is an additional way for charities to claim Gift Aid on smaller donations without needing to collect the donor’s details. It is designed to make it easier for charities to claim Gift Aid on cash donations, especially for those made at collection boxes, charity events, or other small-scale fundraising efforts. Under this scheme, charities can claim 25p for every £1 donated, just like regular Gift Aid—but without the need for individual Gift Aid declarations for each donor. Under this scheme, the charity can claim up to £8,000 in small donations per year, which could be worth an extra £2,000 in Gift Aid.
How GASD Works for Charities
What is Gift Aid Carry Back
To benefit from GASDS, both charities and donors need to meet certain criteria:
- Charity Requirements: As per the 2017 changes, charities or Community Amateur Sports Club (CASC) no longer need to have been registered with HMRC or made successful Gift Aid claims in the previous 2 out of 4 years to claim small gift aid donations.
- Donor Requirements: As a donor, you do not need to do anything extra to qualify for GASDS. If you are already eligible for Gift Aid and have made a qualifying donation, your contribution can count under the scheme, even if the charity doesn’t have your details.
- Donation Criteria: Only cash donations (including contactless payments, charity box donations, and collections) can be claimed under the scheme. Donations made via cheque, bank transfer, or direct debit do not qualify.
- Matching Rule: The total of small donations claimed under GASDS must be matched by the amount the charity claims from regular Gift Aid donations. This ensures that charities still rely on larger donations to support their work.
As a donor, it is a great way to know that even your small cash contributions are helping to boost the charity’s funds.
FAQs
If you Gift Aid a donation but do not pay enough tax, you may owe HMRC the difference. This is because charities reclaim tax on your donation, and you must have paid sufficient tax to cover this.
If you are not a UK taxpayer, you can still make a donation, but it will not be eligible for gift aid.
The recent changes mean that donations to charities in the EU or EEA will no longer qualify for UK income tax, capital gains tax, or inheritance tax relief. If you are leaving a donation to an EU or EEA charity in your will, ensure it still qualifies for inheritance tax relief under the new rules.
No, you cannot claim Gift Aid made by someone else. Only the person who made the donation can claim Gift Aid.
No, you can only claim Gift Aid made to UK-registered charities.
Plan Your Taxes the Right Way!
Gift Aid tax relief offers a great way to maximise your charitable contributions whilst enjoying tax benefits. If you are unsure how to make the most of your donations, Legend Financial is here to help. With over twelve years of expertise in tax planning, we have assisted numerous clients in optimising their taxes and claiming eligible reliefs. We’ll guide you every step of the way to make sure your taxes work in your favour. Contact our tax specialists today!
