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Did you know the Gift Aid scheme was introduced in the Finance Act 1990 but to this day, a little over 30 years later, only 52% of people who donate to charity are taking advantage of the scheme?

But what is Gift Aid? 

Gift Aid is a UK tax incentive for individuals who are subject to UK income tax and allows the charity of their choice to reclaim the tax paid on the gift from HM Revenue & Customs (HMRC).

The reclaim is at the 20% basic rate of tax which means charities can claim an extra 25p for every £1 donated.  For example, if you gave a donation of £100, that charity will get an additional £25 from HMRC.

To take advantage of this, you need to have paid the equivalent amount of the reclaim in tax and fill out a quick Gift Aid declaration form.  If it turns out you have paid less tax than the amount being reclaimed by the charity, you will be charged the difference in income tax.

What if I pay tax at the higher rate?

Gifting to charity has the added benefit of gross donation extending the basic rate band for the individual making the declaration.  This means they will have more tax paid at 20% instead of 40% (41% for Scottish Rate Taxpayers).

For example:

Using the £100 donation above, the below summary shows how a higher rate taxpayer can benefit from giving to charity.

This summary details that a £100 donation will result in a payment of £75.00 or £73.75 for the individual, but the charity still gets the full benefit of £125.

In addition to this, the gross donation of £125 is deducted from an individual’s income, when determining the level of income, for the High Income Child Benefit Charge and for Personal Allowance reductions.

Does this apply to cash donations only? 

The answer is no, you donate unwanted goods to a charity shop and fill in a Gift Aid declaration, they will periodically let you know how much Gift Aid they have reclaimed through their donations which will allow you to include the relevant details in your tax return.

You can also make gifts of qualifying investments such as certain types of shares, securities, and land.  The value of the qualifying investment at the date of gift is what is used for calculating the tax relief, but a qualifying gift is also exempt from Capital Gains Tax.

If you would like to speak to one of our expert team members, please do not hesitate to contact us at David Allen where our charity of the year is the Calvert Trust who are challenging disability through outdoor adventure.  Alternatively, you can visit one of our offices at Dalston, Dumfries, Workington or Penrith.