Making Gift Aid donations

Important points for partners to be aware of regarding charitable donations and tax

Making charitable donations under Gift Aid is a win-win for all involved. By signing a declaration or ticking the Gift Aid box, the charity is able to claim an additional 20% from the government, while higher and additional rate taxpayers will benefit from 20% or 25% tax relief.

Further tax relief is available for those falling within the 60% tax bracket.

How it works

If you donate £100 to a charity under Gift Aid, the charity can claim back 25% of the donation from the UK tax authorities, which in this case is £25. Therefore, the charity will receive £125 in total.

What tax relief will be due on a £100 donation under Gift Aid?

Taxpayer	Marginal rate of tax	Tax relief due	Reduction in tax liability	Cost of donation
Basic	20%	0%	£0	£100
Higher	40%	20%	£25	£75
Additional	45%	25%	£31.25	£68.75
Tax trap¹	60%	40%	£50	£50

*The 60% rate of tax applies to those with income falling in the band £100,000 to £125,140, due to the loss of their personal allowance.

If you are not a UK taxpayer or pay less tax than the amount claimed back by the charity, then you will need to pay HMRC the difference.

Saving your personal allowance

As highlighted above, those whose income above £100,000 pay tax at 60% on the income between £100,00 and £125,140. One way to reduce the tax rate on this income is to make Gift Aid payments that will reinstate some or all of the personal allowance.

An example

If you have an income of £110,000, your personal allowance will be reduced by £5,000.
A donation of £8,000 to a charity under Gift Aid would be grossed up to £10,000.
The gross donation would be deducted from your income, reducing it to £100,000 and fully reinstating the personal allowance.
This would generate a tax saving of £4,000.
The donation would have effectively cost, £4,000, however, the charity receives £10,000.

Being tax efficient with your donations

When making charitable donations, it is important to look at the family unit and consider who should be making the donation; ideally, the individual suffering tax at the highest rate. The donation is then made in the most efficient manner.

Tax relief can be maximised by ensuring that the higher taxpayer is making the Gift Aid payments. For example, if someone in the family is a 20% taxpayer and someone else pays tax at 40%, then the individual paying tax at 40% should make the payment under Gift Aid, as they will be due tax relief of 20%.

If you would like more information on the issues discussed in this article or to discuss your individual circumstances, get in touch with your usual Crowe contact.