Making a charitable donation in place of physical Christmas gifts is a worthy tradition in some families. This means that fewer unwanted items need to be quietly disposed of and as an added benefit the giver and the charity can both claim tax relief in the form of Gift Aid.

Most charities make Gift Aid declarations very easy; you just need to tick a box to say that you are a UK taxpayer and that you pay income tax and or capital gains tax at least equal to the 20% tax treated as deducted from your donation for the tax year of the gift. You also need to remember to record the date and amount of the donations and include them on your self assessment tax return for the year in which the donations were made.

Where you are a higher rate taxpayer, declaring a Gift Aid donation on your tax return will provide you with tax relief calculated as the difference between the highest tax rate you pay and basic rate.

Example

Anne makes Gift Aid donations of £100. The charity reclaims Gift Aid to make the total donation worth £125. As Anne pays 40% income tax she can personally claim back 20% of the gross donation: £25 (£125 x 20%). In practice this tax relief is given by extending the basic rate band.

You can also choose to carry back Gift Aid donations to the previous tax year if the donation is made before you submit the tax return for that year. Donations made now can be treated as if they were made in the tax year 2020-21 if the 2020-21 tax return has not yet been submitted.

This can be a very useful tax planning idea so please let us know if you have made any donations before we finalise your tax return.