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Gift Aid and Higher Rate Tax

This guide contains useful information on Gift Aid and reminds higher rate returnpayers that they can claim additional tax relief when they have made gift-aided contributions to Christian Aid or other charities.

Gift Aid Basics

If you earn £1,000 in salary, and are taxed at the basic rate of 20%, you receive £800 net pay (ignoring National Insurance).  The aim of gift aid is that if you give £800 to a charity, the government will make it back up to the £1,000 you earned - giving to the charity all the tax paid on that part of your earnings.  To get from the net donation of £800 to the gross of £1,000 we add 25%.

Higher rate tax

A higher rate tax payer (40%) earning £1,000 will receive only £600 pay.  Again assume an £800 donation to charity.  £200 is added through gift aid as in the basic rate tax example.


The tax payer can then reclaim further relief through the tax return:

• Relief at 20% has already been granted & paid to the charity - so the gross contribution is £1,000
• Another 20% can be claimed through tax return - £1,000 x 20% = £200.  £800 donated - £200 higher rate relief = £600 net cost.

If you are considering gifting shares to Christian Aid instead of cash, please ask for our Share Giving Fact Sheet.

 

Action Points:

 
• If you complete your own tax return – remember to keep a note of gift aided donations and declare the net amount on your tax return (the net amount is the actual value of the donation made to the charity).

• If you use an accountant for your tax affairs make sure you pass on information about gift aided donations.  Some accountants don’t remind people about this.

• Consider what you would like to happen to the extra tax relief you receive.   Let’s assume you have made a donation of £1,000 and have made a gift aid declaration.  Christian Aid claims £250 from the government, making the donation up to £1,250.  You can claim 20% of that £1,250 as higher rate relief – a possible tax saving of £250. 
- Some people will need to use the relief they eventually receive to reduce the cost of the donation
- Others will be happy to have parted with £1,000 and will be able to consider giving the £250 to Christian Aid as well.  If you do this – then Christian Aid would receive a total of £1,562 from a £1,000 donation.



Gift Aid transitional relief

You may be aware that following the fall in basic rate tax from 22% to 20%, charities are able to claim less Gift Aid from the government.  It is anticipated that this will cost Christian Aid well over £500,000 a year in lost Gift Aid.  The government has announced that it will compensate charities for 3 years up to April 2011 to ensure no loss during that period.  This compensation – or transitional relief – does not affect tax payers and their gift aid claims in any way. 
 

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