Despite the economic challenges over recent years, UK citizens are still showing incredible generosity when it comes to charitable donations. However, many people are unaware of how Gift Aid works and the tax relief available when giving to charity. From Gift Aid explained to tax benefits, we share what you need to know if you are a British taxpayer.
£14 billion was donated to charity in 2023, which is an increase of £1.2 billion on the previous year. 60% of UK citizens donate or sponsor a charitable activity.
Charities Aid Foundation report
What is Gift Aid?
Gift Aid is a scheme provided by the government that allows charities to claim an extra 25p for every £1 donated by a taxpayer. As a result, donations can increase by 25% with no additional cost to the donor. Therefore, if you gave £100 to a charity, this donation would increase to £125 when Gift Aid is applied.
There are certain situations where Gift Aid isn’t applicable, for example, cash sponsorship money from several sources. As it has to be applied individually to each person to qualify, it’s usually better to donate online and tick the Gift Aid box.
If you are a higher or additional rate taxpayer, you can claim back Gift Aid as tax relief. The amount you can claim back will vary and you can do this via your self-assessment tax return or through payroll giving.
How does gift aid tax relief work?
As the government adds 25p to every £1 donated, this is aligned to the 20% basic tax rate. Higher or additional rate taxpayers are able to claim back 20% or 25% on their Gift Aid donations.
As an example, if a higher rate (40%) taxpayer makes a £100 donation, they can claim back £25. Additional rate (45%) taxpayers can claim back £31.20. There is no tax relief for basic rate (20%) taxpayers.
Gift Aid tax relief offers high taxpayers an opportunity to reduce their tax bill, mainly if their earnings are affecting other benefits. By claiming Gift Aid, you can deduct tax relief from your income to prevent you going over the £50,000 or £100,000 thresholds. At the same time, you also have the chance to give back to and support your local community.
You can make a Gift Aid declaration in different ways. If you don’t usually file a tax return, you can complete HMRC’s P810 form to claim back the tax. If you typically submit a self assessment tax return, there is a specific section to complete. For more information, speak to your financial planner.
Our chosen charity – Lincs & Notts Air Ambulance
At Balance Wealth: Planning, we believe strongly in supporting our local community. This is why our nominated charity of the year is the Lincs & Notts Air Ambulance (LNAA). Our team recently paid them a visit to find out more about this important organisation’s work. LNAA do not receive any funding from the government, which means they rely solely on donations to carry out essential lifesaving missions.
We have taken part in various charity challenges this year to help raise £4,000 for LNAA, which is the average cost of a mission. If you would like to help us raise funds for this essential charity, please donate here and remember to tick the Gift Aid box.
Wealth Managers, Nottingham and Lincoln
Whether you need advice on Gift Aid, tax-efficient allowances, or any other aspect of financial planning, please speak to our financial planning team. We can help you manage your wealth and make your money work harder for you, minimising any tax liabilities.
Our team can advise on a range of tax-efficient savings, pensions and investment strategies. It’s our aim to ensure that you can enjoy your present lifestyle and look forward to the future you desire. With some sensible financial planning, you can join 60% of UK citizens who regularly donate or sponsor a form of charitable activity.
If you are looking for tax-efficient financial planning, why not book a review? Get in touch to speak to our financial planners.
