If you are near to the Higher Rate tax band then it might be worth considering Gift Aid donations. Gift Aid is an Income Tax relief designed to benefit charities and Community Amateur Sports Clubs (CASCs).
Under Gift Aid, a charity may claim a tax refund when it receives a donation payment from a tax payer who is an individual. The individual donor must have paid sufficient Income Tax or Capital Gains Tax in order to cover the grossed up amount of the donation made.
How Gift Aid works:
Tax relief for the charity
A donation made under Gift Aid is treated as if it has been received by the charity net of basic rate tax. The charity is then able to reclaim the basic rate tax credit.
For example: If an individual taxpayer makes a donation of £100, the charity can reclaim an additional £25 (£100 x 20/80)
Tax relief for the donor
A donor who is a basic rate taxpayer will receive no further tax relief as a result of making a donation.
A donor who is a higher and/or additional rate taxpayer will be able to claim tax relief on the difference between the higher/additional rate tax and basic rate on the grossed up donation.
For example: An individual taxpayer makes a donation of £100, the charity can reclaim an additional £25, giving a grossed-up donation of £125. Where the taxpayer is a 40% taxpayer, £25 (40%-20% x £125) can be reclaimed, giving a net donation cost of £75.
Where the taxpayer is a 50% taxpayer, £37.50 (50%-20% x £125) can be reclaimed giving a net donation of £62.50.
What form of donation qualifies for Gift Aid?
Gift Aid applies to money donation payments, made by individuals who have made a Gift Aid declaration. Providing certain qualifying conditions are met payments for subscriptions, memberships, sponsorship may also be Gift Aided. Gift Aid is restricted where the donor receives a valuable benefit as a consequence of making a donation.
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