How does Gift Aid interact with your personal tax?
We posted a blog a couple of weeks ago which covered off some key items that you may want to consider when getting your tax return information together – if you haven’t seen it, check it out here
One item we see that is often missed or not recorded as well as other applicable items is where an individual charitable donations where gift aid is applicable, this may be because individuals have forgot to record these or weren’t aware of what gift aid is and how it may interact with your personal tax position.
What is gift aid?
Donating through Gift Aid means charities and community amateur sports clubs (CASCs) can claim an extra 25p for every £1 that is donated, without costing the person who makes the donation.
Charites and CASCs have to be registered under the gift aid scheme for this to apply and not all payments do qualify. Gift aid can only be claimed on eligible donations made by individuals, so doesn’t apply to charitable donations made by companies.
For individuals opting to Gift Aid their donation, you need to provide some simple information to the charity which in most cases is full name, address and a declaration that you are paying taxes in the UK, this means earning over the personal tax allowance of £12,570 (for 2022/23 tax year).
Gift aid is therefore excellent for the charity as this allows them to raise much needed additional funds through the tax system. There is also potential benefits though to the individual past the additional donation this equates to:
- If you are a higher rate taxpayer in the year of the donation then the effect of the donation is it increases the banding at which you pay basic rate tax. The difference on the banding is your donation that you make, plus the gift aid relief the charity can claim. So if you say make a £100 donation to charity, the value of that with the gift aid included is £125. This in turn then gives the individual tax relief on 20% of this, so £25 tax saving.
- Gift aid also interacts with what is referred to as an individual’s “net adjusted income”. The net adjusted income is linked to items such as personal allowance for those at an income level that may be losing it (income of £100k+), those claiming free child care hours and also Child Benefit where this would otherwise start to be lost when someone in the household is earning over £50k in a year. As well as the tax saving mentioned in the first point, the effect of this can increase the saving it could make to a household.
So, our advice to you:
- If you can opt to Gift Aid – do it, ignoring the potential tax savings it’s a great way to give the additional support to a charity that you want to support.
- If you are Gift aiding – record where you are and keep that as part of your tax records. Whether that’s for someone who completes a tax return or not, if relief is due there is still a way you can claim it.
We hope you found this useful and would look forward to supporting you with your personal tax needs.
