Over the past few years, more than ever, many families have opted for trading their physical Christmas presents for charitable donations. This means not only fewer unwanted or unused gifts but also the ability for both the donator and charity to claim Gift Aid tax relief.

How Does Gift Aid Work?

In most cases, charities will make it as straightforward as possible to make your Gift Aid declaration; simply tick a checkbox to confirm you are a UK taxpayer who pays either income tax or capital gains tax. This tax payment will need to be at least equal to the 20% tax that would be deducted from your donation for the tax year of the gift. Don’t forget to keep a record of the donation date and amount, as this can be included in your self-assessment tax return for the year that the donations were made.

Gift Aid For Higher Rate Taxpayers

For those who are a higher rate taxpayer, declaring a Gift Aid donation on your tax return will provide you with a tax relief that has been calculated as the difference between the highest tax rate you pay and the basic rate.

For example, if you were to make a donation of £100 and make your Gift Aid declaration, the charity will reclaim the Gift Aid to increase the total donation amount to £125. Suppose you were to pay 40% income tax; you will then be able to personally claim back 20% of the gross donation, amounting to £25. In practice, this tax relief is given by extending the basic rate band.

Carrying Back Gift Aid Donations

Along with the current tax year, it is also possible to carry back Gift Aid donations to the previous tax year, providing that the donation is made before you submit your tax return. This means that if you are yet to submit your 2020-21 tax return, donations made now can be treated as if they were made during that period.

This can prove to be a very useful tax planning idea, so please let us know whether you have made any donations before we finalise your tax return.