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By Philanthropy UK
Highlights
- Under Gift Aid, for every pound you give the charity can claim another 25p tax back from HMRC.
- Higher-rate taxpayers can claim the difference between the basic rate and the higher rate on their donation.
- There are limits on the benefits given in return for a donation.
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Gift Aid was introduced in 1990 as a way for donors who are UK taxpayers to increase the value of the gift the charity receives, and for higher-rate taxpayers to obtain tax relief on donations to charity. In 2000, the limit of £250 was removed, so the arrangement covers any size of gift. It is now one of the most effective ways of giving to charity.
Using Gift Aid means that for every pound you give, the charity can claim another 25p tax back from HM Revenue & Customs (HMRC), helping your donation go further. Gift Aid allows the charity to reclaim the basic rate of income tax that you have paid on the donation.
You can make payments (of any size) by cash, cheque, postal order, direct debit, standing order, debit or credit card or even in a foreign currency.
To be eligible for Gift Aid, you must:
- Make your gift to a UK registered charity
- Pay tax in the UK
- For the relevant tax year, pay income tax or capital gains tax at least equal to the amount of basic rate relief claimed by the charity
- There are rules limiting the benefits a donor can receive for a Gift Aid donation
How Gift Aid works
For basic-rate tax payers, charities can claim back the tax you have paid. That is, charities take your (after-tax) donation and then reclaim basic rate tax (20%) on its ‘gross’ equivalent (the amount before the tax was deducted).
Example 1If you give a charity £1,000 under Gift Aid, the charity can claim back £250 on your donation. This is because the ‘gross’ amount of the gift is £1,250, or £1,000 ÷ 0.8. |
Example 2For a charity to receive £1,000, you make a Gift Aid donation of £800. This amount is £1,000 less tax at the basic rate of 20%. The charity claims back tax on your donation at the basic rate, or £200. As long as you have paid at least £200 in tax during the financial year in which you make the donation, HMRC will repay the tax to the charity. In general, you can work out the amount of tax the charity will reclaim by dividing your donation by four. |
Through the 2010-11 tax years, charities receive a government grant as transitional relief of 3% in recognition of the reduction in the basic rate of tax from 22p to 20p. This means that, for the tax years 2009-11, for a charity to receive £1,000, you need to make a Gift Aid donation of £780. This transitional relief does not affect your personal tax position.
For higher-rate payers
If you are a higher-rate taxpayer, you are entitled to claim the difference between the basic rate (20%) and the higher rate (40%) on the total value of your donation (the ‘gross’ amount). You can make this claim on your Self-Assessment tax return and if you file your tax return ‘online’ the system will work out the relief owed.
Example 3Using Example 1 above, you can claim back £250, which is 20% of your gross donation of £1,250. The net cost of the gift to you is therefore £750, while the charity benefits from the ‘gross’ value of £1,250. |
Example 4Using Example 2 above, for a charity to receive £1,000, you make a Gift Aid donation of £800. The charity claims back tax on your donation at the basic rate, or £200, while you can claim back an additional £200 (20% of the ‘gross’ value of the donation) on your tax return. The net cost to you of a £1,000 gift is £600, which is £800 (the original donation) less £200 (higher-rate tax reclaimed). Therefore the effective tax relief to you is 25% (£200 ÷ £800). |
Regular donations
If you want to spread payments (for example, yearly or monthly), you can still use Gift Aid and make one simple declaration. The charity should provide you with a Gift Aid Declaration form, or you can use HMRC’s model form (see below). You would then send the cheques on agreed dates or make out a regular standing order or direct debit to the charity.
Similarly, if you want to plan to make a number of gifts to the same charity, you only need to sign the form once, as long as you use a version of the form that makes it clear you want this and all future donations to be Gift Aid donations.
Donor benefits
Charities may want to recognise your donation and offer tokens of appreciation. However, there are limits on the value of the benefits given in return for a donation. If they are worth more than a certain amount, the payment cannot be considered a donation and is not eligible for tax relief.
Acknowledgement on literature, poster or plaques is fine provided they are modest. If the charity is a heritage property or wildlife sight, they may offer you free or reduced entry. Membership fees may allow a charity to claim back Gift Aid in specific circumstances.
Literature that describes the work of the charity which is provided as a gift in return for a donation is not regarded as a benefit for Gift Aid purposes and so should not be taken into account in the limits for gifts detailed below.
The limits are:
Amount of donation £0-100 £101-1,000 £1,001-£10,000 Over £10,000 | Value of Gifts 25% of the value of the gift £25 5% of the value of the gift £500 |
The process of making Gift Aid donations:
Your donation will qualify for Gift Aid if you:
- Pay at least as much UK tax income tax or capital gains tax at any rate as the amount your chosen charity (and all other charities you support in this way) will reclaim on your gifts in the financial year in which you make them (tax credits on dividend income and tax deducted from bank and building society interest count towards the tax paid); and
- Make a simple declaration to the charity that you want your gift to be treated as a Gift Aid donation. You may send this by post, fax or email. However, you may also make an oral declaration over the telephone or face to face.
© Copyright 2009 Association of Charitable Foundations (ACF)
Every effort has been made to ensure that the information provided in A Guide to Giving is current at the time of publication (December 2009), but the Association of Charitable Foundations (ACF) cannot guarantee its accuracy. Furthermore, there may have been subsequent changes to legislation, policy and/or to tax bands and rates. If you are considering any investment you should seek appropriate professional advice. This guide is not intended to replace professional advice on particular investments or the manner in which tax relief is applied under any scheme, and you should not rely on it for such purposes. You are responsible for your own tax and financial affairs and so should seek independent advice. ACF can not accept responsibility for the investment choices you make.
Views expressed in A Guide to Giving are not necessarily those of Philanthropy UK or the Association of Charitable Foundations.
Coutts & Co is not responsible for the content of A Guide to Giving, and the content does not constitute any advice whatsoever from Coutts & Co. The case studies and profiles within the Guide are not necessarily clients of Coutts & Co. Coutts & Co shall not be liable for any loss whatsoever arising from your reliance on any information produced in the Guide.
