October 01, 2024
Article
We all know that giving to charity is already a great and rewarding thing to do, knowing that you are helping make a difference to various great causes. But did you know that it can also benefit you personally by potentially reducing the amount of tax you pay in the year, at no additional cost to you?
The CFG (Charity Financial Group) is once again holding a campaign on 3rd October to increase awareness for ensuring that donors #TickTheBox which allows the charity to claim Gift Aid on any donations made.
From a charity’s perspective, gift aid is a wonderful way of increasing donations by 25%, at no cost to you, so it’s no wonder it’s a popular scheme with charities!
Anyone can attach Gift Aid to a donation, providing they pay UK income tax and/or capital gains tax in the year, to cover the Gift Aid element reclaimed by the Charity. If the individual is a higher rate tax payer and pays some tax at 40%, they can also save up to 20% tax on the Gift Aid donations they make, meaning there is an added bonus to the good deed of donating to a great cause.
This tax saving is achieved by increasing the level of income on which they pay 20% tax and can be claimed by either contacting HMRC to ask them to update their PAYE code or through an entry on their self assessment tax return, if they complete one.
Therefore, if you pay tax at 40% and donate £100 to a charity and #TickTheBox to Gift Aid the donation, the charity will receive an additional £25 from the Government. You will also benefit from a maximum tax saving of £25 (£100 donation plus Gift Aid of £25, at 20% saving). This means that the charity will receive £125 at an overall cost of £75 to you!
The potential tax saving is impacted by your individual income levels, so if you pay less tax at 40%, the saving will not be quite as great but who would say no to a reduction in tax, regardless of how small?! There is also no limit to the amount of tax relief that you can claim as long as you’ve paid tax equivalent to the reclaim.
If you did make a Gift Aid donation in excess of your UK income tax and/or capital gains tax, please be aware that will incur a tax charge to compensate for the amount reclaimed by the charity, so you will need to bear this in mind. You can of course still continue to donate to charity, but will not be able to #TickTheBox and attach the Gift Aid element.
The gross donation, which includes the Gift Aid element, also reduces your net income for the High Income Child Benefit charge and also preserving your personal allowance, which could save even more tax if your income levels are usually just over the limit for these charges to kick in.
Do not worry if you have previously made donations to charity and attached Gift Aid, but haven’t yet taken advantage of the tax savings. There is the opportunity to make a claim for any tax repayment due for the last 4 tax years.
If you would like to discuss this further, or how a Gift Aid donation could benefit your tax position personally, then please get in touch with your usual point of contact or our personal tax team who will be able to advise further.
For charities, the Gift Aid scheme is now well established, and the claim process is simple, providing the correct records have been kept. There is also the added benefit of the Gift Aid Small Donations Scheme (GASDS) which allows charities to claim Gift Aid on “cash in a bucket” type donations, within certain rules. If your charity needs help with any element of the Gift Aid process, please contact our charities team who will be able to assist.