Gift Aid explained

The annual ‘Children in Need’ appeal will be taking place tonight, on Friday 14 November, so now is a good time to be reminded how Gift Aid can increase the value of your donations to charity.

How does it work?

A cash gift you make to a charity under Gift Aid is treated as if you had deducted basic rate tax before you made the payment. So, for example, a payment of £80 is treated as a gift of £100 less tax at 20%, and the charity can reclaim the £20 from HMRC.

If you are a basic rate taxpayer there is no more to consider, but if you are a 40% or 45% taxpayer you are entitled to tax relief at your marginal rate for the £100 gift. So, a total amount received by the charity of £100 costs a basic rate taxpayer £80, a 40% taxpayer £60 and a 45% taxpayer £55.

If the gift is made to a body such as the Charities Aid Foundation, it will reclaim the basic rate tax and add it to the original gift, leaving the donor with, effectively, a bank account of charitable funds to distribute to individual charities as he or she wishes by standing order, debit card or cheque, or online.

Are there any formalities?

Yes, you must complete a Gift Aid declaration that includes your full name, your home address, the name of the charity, and the details of the donations that the declaration it relates to. It must also state that the donation is being made under the Gift Aid scheme.

Is it as simple as that?

Nearly. You must pay an amount of income tax or capital gains tax in the tax year concerned that is at least as much as the basic rate tax you are treated as having deducted from your Gift Aid donations. Otherwise HMRC may recover from you the tax the charity has reclaimed.

Can I carry my gift back or forward to different tax years?

You cannot carry gifts forward, but you can carry them back to the year before you actually made them, provided you paid enough tax in that year to cover the basic rate tax both on the gifts for that year and on the gifts carried back. Depending on your circumstances, this might give you tax relief at a higher or lower rate.

Your request to carry gifts back must be made to HMRC before or at the same time as you submit your tax return for the earlier year, and no later than the filing deadline, i.e. 31 October after the year-end for a paper return and 31 January after the year-end for an electronic return.

Separate rules apply to gifts of land and buildings, or listed shares, to a charity.

For more information, please contact your local tax advisor.


Private client tax team

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