Giving needn't be taxing

Keep track of how much you give to good causes via the government’s tax-saving Gift Aid scheme. If you’re a top rate taxpayer, you can either boost your generosity or – and this is admittedly not a charitable thought – get some money back and keep it for yourself.


According to HMRC higher rate taxpayers reclaimed £280 million in tax relief on donations during the 2008/09 tax year, either for their own benefit or the charity's. However, it's thought that up to half of top rate taxpayers don't reclaim the additional 20% personal tax relief via their tax return. Good news for the taxman, but a lost opportunity for taxpayers and charities.

This is because Gift Aid, which promises full tax relief on donations, assumes all donors pay basic 20% tax only. Those on the top 40% rate can reclaim the extra tax they pay but they have to do it on the return – it’s not automatic unless they make charitable donations via their PAYE salary slip using Give As You Earn schemes.

So, for example, suppose you donate £100 using Gift Aid. The charity can reclaim £25 of basic rate tax and a further £3 from the Government (until 5 April 2011 to compensate for the basic rate tax rate falling from 22% to 20%) making a total donation of £128. If you're a higher rate taxpayer you can reclaim £25 via your tax return, either for yourself or as a charitable donation.

Note, you must have paid at least as much tax as is being reclaimed - this could include tax on savings and capital gains tax as well as income. If it suits, you can backdate Gift Aid donations to the previous tax year.

TAX TIP 1 – Couples where one pays top rate tax and the other basic rate should ensure that all donations come from the partner with the higher rate.

TAX TIP 2 - Never give to a charity without completing a Gift Aid form - charities that take cash usually allow for this on envelopes but putting coins in a collecting box is not tax efficient.