Gift aid

Gift Aid is the Government scheme which allows charities like the Malvernian Society to reclaim the basic rate of tax that has been paid on any donations made (currently 20%) from HMRC. Every donation is treated as having been made net of basic rate tax. For example, a donation of £1 is treated as the net after tax amount and the gross donation is £1.25. Therefore, in order for the charity to gain the full amount of the donation they are able to claim the tax that has already been paid on the amount from HMRC i.e. 25p for every £1 given. In order for the Malvernian Society to be able to reclaim the tax paid on any donations made in the year, the donor must have paid an amount of UK income and/or UK capital gains tax at least equal to the tax that the Malvernian Society reclaims on his/her donations in the tax year. 

For example, on a £10,000 donation, the Malvernian Society is eligible for an additional £2,500 through reclaiming the basic tax relief, making the total gift worth £12,500 to the Society.

Higher rate taxpayers
Individuals who pay UK tax at the higher rate can claim relief for the Gift Aid donations they have made. Even if the higher tax rate had not changed, the changes in the basic rate of tax in April 2008 mean a bigger reclaim amount, equivalent to the difference between the higher rate of income tax and the basic rate. If you pay tax at 45% (on any income over £150,000 p.a. from 6th April 2010), you can reclaim the difference between the higher rate of tax at 45% and the basic rate of tax at 20%, i.e. 25%.

Hence a donation of £10,000 from a 45% tax payer will cost the donor £6,875 as the relief will be given at 25% of the gross donation or maybe even more.



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