Gift Aid Tax Relief
Gift Aid is a great help to charities and should be used whenever possible when making donations to charity. Gift Aid boosts donations by twenty-five percent, by using tax a UK taxpayer will pay on the amount of the donation and giving it to the charity as well as the donation.
Gift Aid Tax Rates
The rate of tax for Gift Aid is the basic rate of income tax, which is currently 20%. However, this doesn't just mean your donation will be increased by 20%, remember when we learned adding-up at school? You are making the donation net, which means it is 80% of the gross taxable amount, so if you increase it back to the full amount, it gains a whopping 25%, a whole quarter more than you are giving goes to the charity.
For example, if you are making a donation of £10, the charity would receive a further £2.50, making £12.50 in all. So, every time you are making a donation, remember to use Gift Aid if possible and for every £100 you donate over the course of a year, your chosen charities will receive a further £25, which is well worthwhile.
Transitional Relief
To help charities prepare for the loss of income resulting from the reduction in the basic rate of income tax (from 22% to 20% from 6 April 2008), and consequent reduction in Gift Aid receipts, the Government will pay charities an extra three pence in the pound on Gift Aid donations received from 6 April 2008 to 5 April 2011, so charities will continue to receive the full twenty-eight pence in Gift Aid during the transitional peiod.
Annual Limits
Just remember that you must have paid, or be due to pay, tax which is sufficient to cover the amount Her Majesty's Revenue and Customs (HMRC) will be paying to the charity or charities on your behalf. So, if you are a non-taxpayer, you can't use Gift Aid.
An example would be a person who has an annual tax bill of £2,500, (the amount of tax they will pay, that is, not their annual income) can safely make donations to charity of up to £10,000 in the year using Gift Aid. Remember it is in the fiscal year (tax year) which counts, not the calendar year. The tax year runs from 6th April to 5th April.
Qualifying Taxes
For working out how much tax you pay, it is not just income tax, you are entitled to include any Capital Gains Tax you have paid, and also any tax credits you have on UK company dividends on shares you hold, even though strictly speaking it wasn't you who paid this tax.
Higher Rate Taxpayers
It is not always realised that the situation is even better for higher rate taxpayers. The highest rate of income tax in the UK is 40% and as well as claiming the standard 20% Gift Aid rate, higher rate taxpayers can claim back a further 20% themselves, being the difference between the higher rate tax they have paid, and the 20% Gift Aid relief.
So, the higher rate taxpayer can feel good about making the charitable donation, while still enjoying a little extra tax benefit, or may of course pass on the further 20% to the charity if they wish.
Further Information on Gift Aid
If you need any further information about Gift Aid, try the Government website at
Directgov - Gift Aid