Gift Aid

Mark Proctor

Partner, Lovewell Blake LLP

What is gift aid?• Available to charities and community

amateur sports clubs (CASCs)• Claim an extra 25p for every £1 donated• Additional tax relief for higher rate tax

payers• Administered by HMRC

Claim process• Register with HMRC• Gift aid declaration online or by post• Can go back four years• Submit regularly or periodically

Requirements• Donations from individual UK tax payer• Must complete a declaration (refer to

hand-outs)• Donor must state that they have paid

enough tax to cover gift aid – either income or capital gains tax

Higher rate tax payers• Higher rate tax payers can reclaim tax

between the higher rate and basic rate (typically 40% - 20%)

• Donation of £1,000 – charity reclaims £250• Higher rate tax payer reclaims £250

(£1,000 x 25% = £1,250 gift aid donation x 20% tax relief = £250)

• Attractive to higher rate tax payers!

Cost of donation• A £1 donation under gift aid requires a

donation of:– 80p for a basic rate tax payer– 60p for a higher rate tax payer– 55p for an additional rate tax payer

• Important to work with donors to boost donation received by the charity

Other donations• Tax payers can get income/capital gains tax

relief when donating land, property or shares• Income tax relief by deducting the value of

the gift from total taxable income• No capital gains tax on assets gifted to charity

(proceeds below market value)• Charity may request property/shares are sold

before donating – tax relief still applies

Legacies• A Will could gift a fixed amount, an item or

a residuary balance of the estate• Reduces the value of the estate before

inheritance tax (IHT) is calculated• Reduces the rate of IHT if the donation is

more than 10% of estate value

Documentation• Tax payer must retain supporting

paperwork• Charity must keep gift aid declarations and

supporting paperwork as may be inspected by HMRC

Small donations scheme• Available for small donations up to £20, no

gift aid declaration required• Annual claim limit of £1,250.• But not available to all – have to meet

certain requirements: have to be claiming gift aid in the same year; claimed in at least 2 out of 4 years; and had a clean record

Special rules• There are special rules for:

– Sponsored challenges e.g. marathon– Membership fees– Church collections– Selling goods e.g. donated items via charity

shop– Charity events– Viewing charity property– Charity auctions

Charity events• Sale of tickets to an event e.g. concert or

fundraising dinner, do not qualify for gift aid• Does not matter if the cost of a ticket is

higher than the cost of the event; that just equals profit from an event not a donation

• Can be overcome by setting a ticket price with a suggested donation under gift aid

• Or a ‘donation only’ event

Charity auctions• Difficult to obtain gift aid on auctioned

items• Need to declare cost of item and can then

claim on donation in excess of the cost• Does not work for items not commercially

available as effectively the price is set by the auction price

The benefit rule• Donor may receive something in return of their

donation (item or service)• Does not include literature – newsletter, plaque• Value is based on the value to the donor not cost to

the charityDonation Maximum value of benefitUp to £100 25% of the donation

£101 - £1,000 £25

£1,001 and over 5% of donation (up to £2,500)

Trading subsidiaries• Charities can have trading income via a

trading subsidiary e.g. retail of purchased goods, contracting services, or other activities outside of primary purpose

• Trading subsidiary can gift aid profits back to the charity to avoid paying corporation tax

Summary• Use gift aid to increase donated income• Work with donors – higher rate taxpayers,

legacies• Seek advice/read guidance where special

rules apply or benefits are returned to the donor in relation to a gift.