Tax relief on gifts to UK charities is available if you give under Gift Aid or
through a Payroll Giving scheme or by making a gift of shares or land. We outline
the reliefs available here. At Kelley & Lowe Limited, we can provide more detailed
advice if you live in the Dartford area.
If you are thinking of making a gift to charity, this factsheet summarises how to make
tax-effective gifts. You can get tax relief on gifts to UK charities if you give:
- under Gift Aid
- through a Payroll Giving scheme, run by your employer; or
- by making a gift of certain shares or land.
Location of the charity
Charitable tax reliefs are available on gifts to UK charities and Community Amateur
Sports Clubs (CASCs).
Gift Aid
If you pay tax, Gift Aid is a scheme by which you can give a sum of money to charity and
the charity can normally reclaim basic rate tax on your gift from HMRC. That increases
the value of the gift you make to the charity. So for example, if you give £10
using Gift Aid that gift is worth £12.50 to the charity.
You can give any amount, large or small, regular or one-off.
If you do not pay tax, you should not use Gift Aid.
How does a gift qualify for Gift Aid?
There are three main conditions. You must:
- make a declaration to the charity that you want your gift to be treated as a Gift
Aid donation
- pay at least as much tax as the charities will reclaim on your gifts in the tax year
in which you make them
- not receive excessive benefits in return for your gift (note that this rule also
applies to persons connected with you).
Making a declaration
The Gift Aid declaration is the charity's authority to reclaim tax from HMRC on your
gift.
Usually, the charity will provide a written declaration form - one form can cover every
gift made to the same charity or CASC for whatever period you choose, and can cover
gifts you have already made (backdating your claim for up to four years) and/or gifts
you may make in the future.
Donor benefit rules
The donor benefit rules that apply to charities that claim Gift Aid are determined by two
percentage thresholds:
- the benefit threshold for the first £100 of the donation is 25% of the amount
of the donation; and
- for larger donations, charities can offer an additional benefit to donors up to 5%
of the amount of the donation that exceeds £100.
There is an overriding limit on the value of benefits received by a donor in a tax year
as a consequence of donations to a charity, which is £2,500.
You can pay membership subscriptions to a charity through Gift Aid, provided any
membership benefits you receive do not exceed certain limits. However, you can disregard
free or reduced entry to view any property preserved, maintained, kept or created by a
charity in relation to their charitable work.
Fundraising events
Where you have raised money which has simply been collected from other people and the
other people have not made a declaration to the charity that they are taxpayers, the
payment is not made under Gift Aid and generally no tax relief is due but see below
regarding the Gift Aid Small Donations Scheme.
However, if you have been sponsored for an event, and each sponsor has signed a Gift Aid
declaration, then the charity can recover the tax on the amounts covered by
declarations. Charities may produce sponsorship forms for this.
Higher rate and additional rate taxpayers
If you are a higher/additional rate taxpayer, you can claim tax relief on the difference
between the basic rate and higher/additional rate of tax (through your tax return).
Relief is given either for the tax year of payment or in some cases it is possible to
elect to receive the benefit of the higher/additional rate tax relief in the tax year
prior to the year of the donation.
You should therefore keep a record of payments made under Gift Aid for each tax year.
The time limit for claiming tax relief on Gift Aid donations is four years. This time
limit applies to the charity and the individual making the gift.
Example
| Gift to charity |
Charity reclaims tax |
Total value of gift |
| £1,000 |
£250 |
£1,250 |
Tax reduction for higher rate taxpayer is £250 and for additional rate taxpayer
is £312.50.
So, a gift worth £1,250 to the charity could cost as little as £687.50.
Tainted donations to charity
Tax relief is denied on donations where one of the main purposes of the donation is to
receive a tax advantage for the donor or connected person directly or indirectly from
the charity. There is no monetary limit on the amount of the donation which may be
caught by these rules.
Gift Aid Small Donations Scheme (GASDS)
Charities can use Charities Online for repayment of tax on other income and claims for
top-up payments under the Gift Aid Small Donations Scheme (GASDS).
Charities and CASCs can claim a top-up payment on small donations without the need to
collect Gift Aid declarations. The Gift Aid Small Donations Scheme (GASDS) applies where
it is impractical to obtain a Gift Aid declaration. GASDS applies to donations of
£30 or less made by individuals in cash or contactless payment. Charities are
generally able to claim on small donations of up to £8,000 per annum which will
result in a repayment of £2,000 for the charity or CASC. The GASDS claim must not
be more than ten times the Gift Aid claim.
The GASDS is ideal for small cash donations or contactless payments received in
collection boxes, bucket collections and during religious services.
Payroll Giving
A Payroll Giving scheme allows you to give regularly to charity from your pay and get tax
relief on your gifts. The scheme requires your employer to set up and run a scheme. You
authorise your employer to deduct your gift from your pay. Every month your employer
pays it over to a Payroll Giving agency approved by HMRC. The agency then distributes
the money to the charity or charities of your choice.
Because your employer deducts your gift from your pay or pension before PAYE is worked
out, you pay tax only on the balance. This means that you get your tax relief
immediately at your highest rate of tax. The amount you pay in national insurance
contributions is not affected.
Gifts of shares or land
Capital gains tax (CGT)
You are not liable to CGT when you make a gift of assets, such as land or shares, to
charity, even if the asset is worth more when you donate it than when you acquired it.
Income tax
You may also get income tax relief for these gifts to charity if they are 'qualifying
investments' (see below).
The relief you can claim will usually be the market value of the shares, securities or
land plus any incidental costs of disposal less the value of any consideration or
benefits you receive.
Example
Alma owns quoted shares with a market value of £4,000 and an original cost to
her of £1,000. Alma is a higher rate taxpayer.
Alma gives the shares to the charity. The charity will then sell the shares for
£4,000 and keep the full sale proceeds.
Alma will not have a capital gain arising under CGT. She will be entitled to 40%
income tax relief on the value of her gift, ie £1,600.
Although this sounds a very attractive relief, a comparison should be made of the
alternative route of gifting to a charity by selling the investment and giving the
net proceeds to charity under Gift Aid.
So, if Alma sold the shares, she would make a capital gain of £3,000 before
considering any unused annual exemption. If, say, the CGT bill is nil, she could
gift the proceeds of £4,000 under Gift Aid. The charity can reclaim tax of
£4,000 x 20/80 = £1,000. Alma is entitled to higher rate relief on the
gross gift of £1,000 (£4,000 x 100/80 x 40 - 20%).
Although Alma has received less tax relief (£1,000 compared to £1,600),
the charity will have received £5,000 instead of £4,000 (£4,000
from Alma and £1,000 from HMRC).
Note corporation tax relief is also available for gifts of qualifying investments to
charity.
If you would like further advice on this
matter, please contact us.
Qualifying investments
In more detail, the following investments qualify for the tax relief:
- shares and securities listed or dealt in on the UK Stock Exchange, including the
Alternative Investment Market
- shares or securities listed or dealt in on any overseas recognised stock exchange
- units in an authorised unit trust (AUT)
- shares in a UK open-ended investment company (OEIC)
- holdings in certain foreign collective investment schemes (foreign equivalents of
AUTs and OEICs)
- a qualifying interest in land.
You should always contact the charity to ensure that it can accept the shares or the
land. Indeed for land, the charity needs to give you a certificate stating that it has
acquired the land.
The charity may be able to help you with the transfer procedure.
How we can help
It makes sense to do charitable giving in a tax efficient way. We can provide
assistance in determining this for you. If you live in the Dartford area please contact us at Kelley & Lowe
Limited for more detailed advice.