How does Gift Aid work in the UK?

Full answer

Gift Aid is a government scheme that allows UK charities and CASCs (Community Amateur Sports Clubs) to reclaim the basic-rate Income Tax on donations from UK taxpayers. When you make a Gift Aid donation, you sign a declaration confirming you've paid enough UK Income Tax or CGT to cover the tax that the charity will reclaim. The charity then reclaims 25p for every £1 donated — so your £100 donation is worth £125 to the charity (because they reclaim £25 in tax, equivalent to 20% of the grossed-up donation of £125). For higher-rate (40%) taxpayers: the total tax relief on the donation is 40% of the grossed-up gift. The charity claims the basic-rate 20% relief. The taxpayer can claim the additional 20% back via their Self Assessment return, reducing their tax bill. On a £100 donation: charity receives £125; HMRC gives the charity £25; higher-rate taxpayer claims £25 back via Self Assessment — net cost to the higher-rate taxpayer is just £75. For additional-rate (45%) taxpayers: even more relief is available — net cost £68.75 per £100 donated. You cannot use Gift Aid if you haven't paid enough UK tax to cover the reclaim. For example, if you donate £100 but only paid £15 in tax that year, you cannot make a valid Gift Aid declaration — doing so could leave you liable to pay the shortfall. Payroll Giving is a different scheme (donations direct from gross salary via PAYE) that gives immediate tax relief without needing a Gift Aid declaration.

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