Spotlight on Gift Aid – benefit great causes and pay less tax
What is Gift Aid?
Gift Aid is a tax relief designed to encourage individuals to make donations to charities and it is working. The amount of Gift Aid paid to charities totalled £1.26bn in 2015/16 (up from £1.19bn in the previous year).
In most cases, donating through Gift Aid means charities can claim (from the government) an extra 25p for every £1 you give at no cost to you. This means if you give £100 through Gift Aid then the charity receives £125 and if you give £10,000 the charity receives £12,500.
Gift Aid donations are even more effective for higher or additional rate tax payers who can provide £1,000 of funds to charity for only £600 or £550 respectively while paying less tax.
How does it work?
The process is simple: you need to make a Gift Aid declaration (usually provided by the charity) to each charity you want to support through Gift Aid and you can include all donations from the last four tax years (6 April to 5 April).
You also need to pay enough tax in the tax year for which you are claiming relief and your donations must not exceed four times the amount of tax you paid in that tax year.
The tax could have been paid on income (from earnings, savings or investments) or capital gains (from the sale of assets). You must tell the charities you support if you stop paying enough tax.
What about higher rate and additional rate tax payers?
Higher or additional rate tax payers can boost Gift Aid donations by 67% or 82% respectively. This works by claiming further tax relief to top up the basic rate already added to your donation and you usually do this via a tax return.
Usually, if you are planning activity for the 2016/17 tax year such as an ISA contribution you need to complete that by 5th April.
However, with Gift Aid tax planning you have more breathing space. A Gift Aid donation can count in the current tax year even if made after 5th April up to the date you send your tax return for that tax year (deadline 31st January).
This might suit you if you wish to reduce a tax bill in the previous tax year (perhaps you received a bonus or pay rise or didn’t know your total tax until late in the tax year) or if you used to pay higher rate tax in the previous tax year but don’t in the current tax year (eg reduced hours, career change or retirement).
From Gift Aid to Pump Aid
Pump Aid will provide Gift Aid declarations to boost your charitable donations, just click here for the Gift Aid form. You can find out more about our projects and impact here and contact us to donate or make a donation online.
Finally, this blog is for information purposes only and you should consult a practising financial or tax adviser if you require individual advice.
I hope this is helpful. Watch this space for more financial planning and philanthropy insights.