Gift Aid for individuals

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 charities. 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 28p from HM Revenue & Customs, helping your donation go further. Gift Aid allows the charity to reclaim the basic rate of income that you have paid on the donation.

You can make payments (large or small) by cash, cheque, postal order, direct debit, standing order, debit or credit card or even in a foreign currency (including the euro).

However, there are some administrative requirements for the donor and the charity. When you give shares or donate through your payroll, you benefit from all the tax relief. With Gift Aid, the position is different, and this makes the calculations more complicated. For basic-rate taxpayers, the charity can claim back the tax you have paid. With the basic rate at 22%, this works out at 28% of every donation. Another way of looking at it is that the charity receives the total amount you would have earned (and paid basic rate tax on) to the net value of your gift. The charity 'grosses up' the donation.

• So, for the charity to receive £1000 you make a Gift Aid donation of £780. This amount is £1000 less tax at the basic rate of 22%.

The charity claims back tax on your donation at the basic rate. That is £220.

As long as you have paid at least £220 in tax during the financial year in which you make the donation, HMRC will repay the tax to the charity.

If you are a higher-rate taxpayer, you are entitled to claim the difference between the basic rate (currently 22%) and the higher rate (currently 40%). You do this by entering the amount given on your self-assessment tax return and the system will work out the relief owed.

• In our example, you claim back tax on the amount you had to earn (£1000) or the gross value of the donation. That is currently 18% or £180. Another way of looking at it is that the tax relief to you is 23% (£180 ÷ £780) of your original donation.
• So the actual cost to you of your donation of £1000 is £780 (original donation) minus £180 (tax reclaimed), equals £600.

If you want to spread your payments (for example, yearly or monthly), you can still use Gift Aid and make one simple declaration. You would then send the cheques on the agreed dates or make out a regular standing order or direct debit to the charity.

In our example, a basic-rate taxpayer could make a donation of £1000 at a yearly cost over five years of £156 (£780 ÷ 5). If you are a higher-rate taxpayer, a donation of £1000 could cost you as little as £120 a year (£600 ÷ 5) - equivalent to £10 a month - over the next five years.

However, if you are in paid employment or receiving a company pension, it is more tax-efficient to give through your payroll. In some cases, your employer will match your donations, so it is even more beneficial for the charity. For more information on that, go to the section on payroll giving.

Your donation will qualify for Gift Aid if you:

• pay at least as much UK tax (income or capital gains at any rate) as your chosen charity (and all the 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 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. For an example of the form you may use, go to the next page. You may send this by post, fax or email. However, you can also make a declaration over the telephone or face to face.

If you make an oral declaration, the charity must record the necessary information and send you a copy showing:

• the same details as for a written declaration;
• a note explaining the requirement to be a UK taxpayer;
• a note explaining your entitlement to a 30-day 'cooling-off' period;
• the date on which you gave the charity the declaration; and
• the date on which the charity sent you the written record.

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.

Charities may want to recognise your donation and offer tokens of appreciation. However, there are limits on the value of the benefits that can be offered for Gift Aid donations, which are meant to be unconditional gifts to charity. Acknowledgment in the charity literature, on posters or wall plaques is fine provided they are modest. If the charity is a heritage property or wildlife site, they may offer you free or reduced entry.

Otherwise there are limits to the cash value of the benefits that a donor (or person connected with the donor) may receive as a response to the donation. If the donation is under £100, benefits must not be more than 25% of the donation. For gifts up to £1000, the limit for the value of benefits is £25, and for gifts over £1000 it is 2.5% of the donation. If there has been more than one Gift Aid donation in the same tax year, the total value of benefits for all donations should not be more than £250.

HMRC leaflet IR65 'Giving to Charity by Individuals' is a useful guide.

Below is a model Gift Aid declaration form that you can use when you want to donate to a UK charity. Simply fill in this form and send it and your donation to the charity you want to support.