Gift aid charity donations, if you pay tax

David Hill INLT 45-099-PSB
David Hill INLT 45-099-PSB

I was talking to friends last week who were raising money for charity and they weren’t sure how the gift aid rules worked. So this week, I want to run over what to do and what not to do when giving to a registered charity.

Firstly, with lifetime giving if you tick the gift aid box on a donation form then the charity will receive an extra 25 per cent on top of any contribution that you make. This is a significant increase which charities are understandably keen to take advantage of.

If you are a higher rate-tax payer you can then claim back another 25 per cent of your contribution. So a donation of £80 would allow the charity to claim a further £20 of tax back giving them a total of £100 and a higher-rate tax payer can claim back another £20 as a tax refund. Higher-rate tax payers need to remember to claim this as it is not automatic.

What many people do not realise, however, is that you can only allow the charity to claim gift aid on your contribution if you have actually paid the amount of tax that they are claiming. If a charity claims tax on your donation and you haven’t paid any tax then you will owe that amount of money to HMRC and you will be expected to pay it. This may come as a shock to some who have ticked the gift aid box without realising the consequences if they are a non-taxpayer.

Charitable legacies in a will do not qualify for gift aid, but there are still some tax breaks for some who leave money to charity in their will. Firstly, there is no inheritance tax charged on any money left to a registered charity, and secondly, if you were to leave more than 10 per cent of your net estate to a charity, the inheritance tax due on the net estate will be reduced from 40 per cent to 36 per cent. You do need to be very careful though, if you decide to leave a percentage of your estate to charity, as this can make life very difficult for the executors, who will be required to prepare very full and accurate accounts to ensure the charity receives every penny to which they are entitled.

David Hill is a Chartered Financial Planner and Independent Financial Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: