Gift aid tax benefits

Source: HM Revenue & Customs | | 25/05/2023

The gift aid scheme, which was originally introduced in 1990, allows charities to reclaim from HMRC the basic rate of Income Tax deducted from qualifying donations by UK taxpayers. This means that when a basic rate taxpayer claims gift aid on a £10 donation, the charity can reclaim from HMRC the £2.50 of tax paid on that donation.

If you are a higher rate or additional rate taxpayer, you are eligible to claim additional tax relief on the difference between the basic rate and your highest rate of tax.

For example:

If you donated £5,000 to charity, the total value of the donation to the charity is £6,250. You can claim back additional tax of:

  • £1,250 if you pay tax at the higher rate of 40% (£6,250 × 20%),
  • £1,562.50 if you pay tax at the additional rate of 45% (£6,250 × 25%).

Taxpayers have the option to carry back charitable donations to the previous tax year. A request to carry back the donation must be made before or at the same time as the previous year’s Self-Assessment return is completed.

This means that if you made a gift to charity in the current 2023-24 tax year that ends on 5 April 2024, you can accelerate repayment of any tax associated with your charitable giving. This can be a useful strategy to maximise tax relief if you are not paying higher rate tax in the current tax year but did in the previous tax year. This should be done as part of the Self-Assessment tax return for 2022-23 which must be submitted by 31 January 2024.

You can only claim if your donations qualify for gift aid. This means that your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year.