Giving to charity under Gift Aid can result in a lower tax bill for the donor.
Making a Gift Aid donation will reduce your tax bill for the year in which the donation is made if your total income is above the 40% threshold (£50,270 for 2021/22). Taxpayers resident in Scotland can save tax with Gift Aid donations if their total income, including earnings, is above the 21% threshold (£25,296 for 2021/22).
Alternatively, you can shift the tax benefit back one year by telling HMRC on your tax return. This can be useful if your marginal tax rate was higher last year than in the current tax year.
To carry back the Gift Aid donation, it must be made before you file your tax return for the earlier tax year. Say you make a Gift Aid donation of £2,000 on 21 December 2021. If you submit your 2020/21 tax return after that date (it’s due by 31 January 2022) you can include a claim in that return to carry back the £2,000 donation you made on 21 December 2021, which will reduce your 2020/21 tax liability.
Gift Aid can reduce your income used to calculate the clawback of Child Benefit (income over £50,000) and the reduction of personal allowance (income over £100,000). It can also increase your higher rate or additional rate threshold, which determine whether you receive a Personal Savings Allowance of £1,000, £500 or nil.
To make a valid Gift Aid donation, you must declare that you will pay sufficient tax to cover 25% of the value of your gift in the year the gift is made (or in the previous year if a carry back claim is being made). If you give £800 under gift aid, you must pay income tax and/or CGT of at least £200; this is the amount of tax that the charity reclaims from HMRC.
Check the level of your charitable donations this year before you complete your next tax return.