Anyone signing up when making a charity donation will be asked to complete the “Gift Aid Declaration” box. In doing so, the donor must confirm they are a UK taxpayer.
This can benefit the charity significantly as, for every £1 given through Gift Aid, it is actually worth £1.25 to the charity.
Beware – if the individual has not paid enough tax to cover the tax claimed by the charity on the donation, HMRC may ask the donor to pay the equivalent amount in tax. Pensioners on just state pension, students etc should be very careful and not be persuaded to tick this declaration if they are unsure of their tax position.
However, donors who pay tax at the higher (40%) or additional rate (45%) of tax can claim relief of the difference between these rates and the basic rate (20%) through their self-assessment returns.
A 40% taxpayer giving £100 therefore sees the charity end up with £125, and, if it is entered onto his tax return, he will also pay £25 less tax too! Ensure a record of Gift Aid donations in the year is kept and passed to your accountant with the other tax return information.
Payroll giving schemes enable employees to make donations to charity as a deduction from their pay and to receive tax relief at source for those donations. Employers wishing to operate a scheme must appoint a payroll giving agency. The employer deducts the donation from the employee’s gross pay for PAYE purposes and pays it over to the payroll giving agency. The payroll giving agency passes the donation on to the employee’s chosen charity.
As the deduction is made from gross pay, no tax is paid on it, and any higher rate relief will have been obtained automatically as a result. However, the employee will still pay National Insurance on the amount donated (as will the employer).
Gifts in a will
Where a donation to charity is made in a will, the donation will either reduce the value of the estate before inheritance tax is calculated, or, if 10% or more of the estate is left to charity, the rate of inheritance tax is reduced from 40% to 36%.
Giving land, property or shares to charity
Income tax and capital gains tax relief may be available for donations of land, property or shares to charity. Income tax relief is given by deducting the value of the donation from total taxable income for the tax year in which the gift was made to the charity. Relief is claimed in the self-assessment return.
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