Gift Aid – the gift that keeps on giving

With Christmas almost upon us ‘tis the season to be both jolly ….. and generous. Whilst hanging up your stocking or decorating your tree, spare a thought for charities who will be especially busy at this time of year and the individuals who rely on their support.  Charitable giving can leave you with a warm fuzzy feeling but it can also save you tax!

Gift Aid

Gift Aid has been around for years and it is common knowledge for every £1 donated, an extra 25p can be claimed back by charities from HMRC.

Better still, higher rate taxpayers can claim tax relief regarding the gross donation received by charities.

A net donation of £100 becomes £125 in the hands of the charity.  The individual them claims tax relief of £25 and the donation has only cost them £75! Win win!

Government statistics suggest almost £1.4 billion was repaid to charities via Gift Aid in 2018/2019. Whilst figures include Gift Aid by companies as well as individuals, it translates into a lot of tax relief.

Retail Gift Aid Scheme

Gift Aid only applies to donations of cash but the Retail Gift Aid Scheme is a way it can be used to boost the value of donated goods.  When clearing out your cupboards in anticipation of a haul of new goodies from Santa, don’t forget to consider if Gift Aid applies.

In basic terms, the charity acts as an agent for the donor, selling the goods on their behalf. Sale proceeds are then donated and subject to Gift Aid.  For example, if your novelty socks sell for £5, the charity can claim an additional £1.25.  Sounds like a no brainer? In some ways it is but the rules for charities are complex and not all of them have signed up to it.   Sounds complicated but all you need to do is ask if the charity has signed up to the scheme and sign an appropriate Gift Aid declaration.

Inheritance tax

Gifts to charity are also efficient from an inheritance tax perspective as charitable legacies are deducted before inheritance tax is calculated. If you leave at least 10% of your estate to charity, the rate of inheritance tax on the chargeable estate is reduced from 40% to 36%.

Gift Aid is the gift which keeps on giving so let’s all dig deep this Christmas.