Millions of taxpayers who donate to charity entitled to tax refund
Higher rate taxpayers could be missing out on an average of £159 a year while additional rate taxpayers could be owed £198.75.
Donors are able to backdate their claims by up to four years, so if they regularly give to charity they could be in for a bumper rebate.
The rebate eligibility is all due to Gift Aid. Gift Aid allows charities to claim 25p extra for every £1 donated by someone who pays income tax or capital gains tax. But Gift Aid is only based on the basic rate of income tax (20%).
That means those on the higher or additional rate income tax bands can claim the difference back on a Self Assessment tax return.
For example, if you donate £100 to charity, it will be able to claim £25, making the donation worth £125.
A higher rate tax payer will also be able to claim 20% on the gross donation - the difference between the basic rate and higher rate tax bands. This means for every £100 donated through Gift Aid, the charity can claim an extra £25 and the donor can get £25 tax relief (20% of the £125).
For additional rate taxpayers (those earning more than £125,140 a year), their income is taxed at 45%. Therefore they can get 25% tax relief on their Gift Aid donations. If someone on the additional rate donated £100, the charity would get £125 and the donor would get £31.25 tax relief.
The average amount donated by higher and additional rate taxpayers every year is £636 according to the Charities Aid Foundation.
That means a higher rate taxpayer is eligible for £159 in tax relief every year, while additional rate taxpayers can get £198.75.
You are able to claim for tax overpayments going back four tax years, meaning the average relief could be worth between £636 and £795 in total.
In the 2024/25 tax year you can claim as far back as the 2020/21 year.
Why is Gift Aid claiming 25% when the basic rate of income tax is 20%?
Gift Aid is generated when the donor is someone who pays income tax or capital gains tax. It's assumed someone is donating their post-tax income.
The charity is allowed to claim 20% of the pre-tax amount that was earned, not post-tax. So to donate £100 you would have needed to earn £125 beforehand. That is how charities are claiming on a basic rate income tax but still get 25p for every pound.
Can you get tax relief on your donations without doing a Self Assessment form?
Yes if you're paid through payroll you can have donations deducted from your salary before it is taxed.
One scheme is called Give As You Earn.
A charity won't be able to claim Gift Aid on these salary deductions because you won't have paid tax on them.
But it makes it easier to claim tax relief and cheaper to donate to charity. Every £1 donated will only cost a basic rate taxpayer 80p because it is not being subjected to income tax.
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