Gift Aid
What is Gift Aid?
Gift Aid is a tax incentive that enables tax-effective giving by individuals to charities in the UK. It allows two things:
- Charities to claim tax money from HMRC after taxpaying individuals donate
- Individuals to claim back tax from HMRC after donating to charity (higher rate taxpayers only)
Basic example
Suppose you get paid £100 pre-tax for a job you've done, or from a pension you receive. In most cases in the UK you'll be taxed 20% on that money which means you'll keep £80. If you decide to donate that £80 to a charity, Gift Aid allows the charity to claim £20 from HMRC, resulting in the charity receiving £100, as if you'd donated the full amount pre-tax.
Higher rate taxpayers
The basic Gift Aid that charities claim assumes your income is taxed at 20%. But if your income is taxed at a higher rate, for example if you earn more than £50k, you can also claim Gift Aid for yourself. The amount you can personally claim is calculated as the difference between your actual tax rate and the basic tax rate on the gross value of the donation:
Personal claim = 1.25 * Post-tax donation * (Tax rate - 20%)
Higher rate example
Suppose again you get paid £100 pre-tax but this time you're in a 40% tax band so you only keep £60, which you then decide to give to a charity. Gift Aid for charities naively assumes the £60 donation was the result of income taxed at the basic rate of 20%, so the charity can claim £15 from HMRC, making the gross value of the donation £75. You can now personally claim the difference between your actual tax rate and the basic tax rate on this gross value:
Personal claim = 1.25 * £60 * (40% - 20%) = £15
The net result is that you have £15, the charity has £75 and HMRC has £10.
Here are some more examples, this time of making a £100 donation after tax:
| Tax Rate | Donation (after tax) | Charity Gift Aid | Personal Gift Aid | You've paid | Charity receives | HMRC keeps |
|---|---|---|---|---|---|---|
| 20% | £100.00 | £25.00 | £0.00 | £100.00 | £125.00 | £0.00 |
| 40% | £100.00 | £25.00 | £25.00 | £75.00 | £125.00 | £16.67 |
| 45% | £100.00 | £25.00 | £31.25 | £68.75 | £125.00 | £25.57 |
How to claim Gift Aid
If you're in a higher rate tax band you can personally claim Gift Aid through your self-assessment tax return, or by asking HMRC to amend your tax code.
Gift Aid eligibility
Charities can claim Gift Aid on your donations if you pay tax on any of the following in the UK:
- a wage or pension
- income reported in a self-assessment form
- investment income or taxable savings e.g. in a building society
- capital gains tax e.g. on the sale of property or shares
Gift Aid can be claimed on donations up to a cumulative total value of 4 times what you pay in tax e.g. if you pay £3k tax in a particular tax year, Gift Aid can be claimed on donations up to a cumulative total value of £12k.