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About Tax efficient donations

Gift Aid

Gift Aid increases the value of donations to UK charities and Community Amateur Sports Clubs (CASCs) by allowing them to reclaim basic rate tax on your gift. If you pay higher rate tax you can claim extra relief on your donations. If you claim age-related allowances or tax credits, Gift Aid donations can sometimes increase your entitlement.

How Gift Aid works

The Gift Aid scheme is for gifts of money by UK taxpayers. Charities or CASCs take your donation - which is money you've already paid tax on - and reclaim basic rate tax from HM Revenue & Customs (HMRC) on its 'gross' equivalent - the amount before basic rate tax was deducted.

Basic rate tax is 20 per cent, so this means that if you give £10 using Gift Aid, it's worth £12.50 to the charity. For donations between 6 April 2008 and 5 April 2011 the charity or CASC will also get a separate government supplement of 3p on every pound you give.

How to make a donation using Gift Aid

In order to make a Gift Aid donation you'll need to make a Gift Aid declaration. The charity will normally ask you to complete a simple form - one form can cover every gift made to the same charity or CASC for whatever period you choose and can cover gifts you have already made and/or gifts you may make in the future.

Gifts made jointly by people living together

You can use Gift Aid for gifts you make jointly if you tell the charity or CASC how much each of you is giving and if you each make a Gift Aid declaration.

Making sure you've paid enough tax to use Gift Aid

You can use Gift Aid if the amount of Income Tax and/or Capital Gains Tax you've paid in the tax year (6 April one year to 5 April the next) in which your donation is made is at least equal to the amount of basic rate tax the charity or CASC is reclaiming on your gift. If you make a number of donations you will need to consider the tax you've paid on each donation on an accumulative basis.

You don't necessarily have to be working to be paying tax. Apart from tax on income from a job or self-employment, the tax you've paid could include:

But only UK tax counts, so if you only pay tax outside the UK you won’t be able to use Gift Aid.

How to check if you've paid enough tax

To work out if you've paid enough tax to cover your donations, divide the donation value by four. For example, if you give £100 in a particular tax year you will need to have paid £25 tax over that period. (£100/4 = £25). (Note that this calculation is based on the basic rate tax of 20 per cent.)

If you don't think you've paid enough tax this year, you may be able to backdate your donation. See the later section 'Backdating Gift Aid donations to the previous tax year'. If you make a Gift Aid donation(s) and have not paid enough tax you may have to pay the shortfall to HMRC.

Claiming back higher rate tax

If you pay higher rate tax, you can claim the difference between the higher rate of tax (40 per cent) and the basic rate of tax (20 per cent) on the total (gross) value of your donation to the charity or CASC.

For example, if you donate £100, the total value of your donation to the charity is £125 - so you can claim back 20 per cent of this (£25) for yourself. You can make this claim on your Self Assessment tax return if you were sent one.

For more information see section below 'Telling HMRC about your Gift Aid donations'.

Backdating Gift Aid donations to the previous tax year

You can ask for Gift Aid donations to be treated as being paid in the previous tax year if you paid enough tax that year to cover both any Gift Aid gifts you made that year and the ones you want to backdate.

Your request to backdate the donation (and claim higher rate relief if applicable) must be made before or at the same time as you complete your Self Assessment tax return for the previous year and no later than the filing deadline for the tax return, which is 31 October if you file a paper tax return, or 31 January if you file online.

If you don’t complete a tax return you can ask your Tax Office to send you a form P810 Tax Review – you must send this by no later than 31 January after the end of the tax year to which you wish to backdate your gift.

Example

Mr Jones makes a Gift Aid donation of £1,000 on 1 June 2009. He can either treat the donation as being for this tax year (2009-10) or carry back the relief to last tax year (2008-2009). As he paid enough tax last year to cover both last year’s donations and this one, he chooses to carry the relief back. He hasn’t yet completed a tax return for 2008-09 so he makes his claim on that return and files it online before 31 January 2010.

But if Mr Jones had already sent back his tax return for 2008-09, he would only be able to ask for the donation to be treated as Gift Aid for the year 2009-2010. You can’t change a tax return in order to carry back a donation.

Gift Aid - effect on age-related Personal Allowance, age-related Married Couple's Allowance or tax credit claims

If you claim the age-related Personal Allowance or Married Couple's Allowance or tax credits it's important to let HMRC know about any Gift Aid donations. They will subtract the amount you donate plus the basic rate tax from your total income and use the reduced figure to work out the value of your allowances or tax credits.

This may have the effect of increasing these allowances or credits if your income was above the relevant 'income limit' that applies.

Telling HMRC about your Gift Aid donations

It’s important to keep a record of the total amount of your Gift Aid donations for each tax year. You’ll need to let HMRC know about your Gift Aid donations if:

If you normally complete a tax return you can tell HMRC about your Gift Aid donations by completing the section on Gift Aid payments.

If you don’t complete a return, you can give the details on form P810 Tax Review - available from your Tax Office, or telephone your Tax Office and ask them to make a change to your tax code.

Donating tax refunds to charity through your tax return

If you complete a tax return and are due a refund you can ask HMRC to treat all or part of it as a Gift Aid donation. Follow the link below to find out more. This can’t be carried back to earlier periods.

Tax relief when giving assets to charity

If you give certain assets to a UK charity you can claim Income Tax relief and lower your tax bill. You can also claim relief if you sell the asset to a UK charity at less than its market value.

Assets that you can get Income Tax relief on

You can claim Income Tax relief if you give an asset to a UK charity or sell it to a UK charity at less than its market value. The assets you can claim relief on are:

If you need help to decide if you can claim relief on an asset you can call HM Revenue & Customs (HMRC) on 0845 302 0203. Lines are open from 8.00 am to 6.00 pm. Or you can write to HMRC at:

HM Revenue & Customs Charities
St John's House
Merton Road
Liverpool
L75 1BB

Giving an asset to a UK charity

First you need to contact your chosen charity to make sure it can accept your gift.

If you want to give shares you need to sign a transfer form to:

If you want to give land or property you must transfer the whole of your interest in that land or property to the charity. This means that you can't give your property to charity and continue to live in it. If more than one person owns the property call HMRC on 0845 302 0203 for guidance on how Income Tax relief is given.

Working out the Income Tax relief you can claim

The way you work out Income Tax relief is different depending on whether you give an asset to a charity or sell it to a charity at less than its market value.

Tax relief on a gift

To work out the amount of Income Tax relief you'll get for making a gift to a charity, add together the market value of the asset you're giving and any costs like legal fees. Then take away any money or other benefits you (or anybody connected with you) get for giving the asset to the charity.

Tax relief on a sale at less than market value

To work out the amount of Income Tax relief you'll get when you sell an asset to a charity at less than market value, add together the market value of the asset you're selling and any costs like legal fees. Then take away the amount you sell the asset for. After that take away any money or other benefits you (or anybody connected with you) get for selling the asset to the charity.

In both cases you can get Income Tax relief by deducting what's left from your total income for the tax year you make the gift. A tax year runs from 6 April one year to 5 April in the next. You can't carry the relief forward or backwards to any other tax year.

Market value

The market value is the price that the asset might reasonably be expected to sell for in an open market. There can be different rules if the charity has to do something in return for receiving the asset.

If you're giving or selling land or property you should usually value it on the date you transfer it to the charity. It's likely that you'll need to pay a professional adviser to work out the market value. You can add those costs to the market value when you work out your tax relief.

There are different rules for working out the market value of shares and securities or other investment

Income Tax relief example

To work out how much you can deduct from your income you add together the value of the property and the total amount of fees. Then you take away the value of the painting:

Value of the property £90,000
Plus valuation fees £400
Less value of the painting £1,000
Total deduction £89,400

So you can get Income Tax relief by deducting £89,400 from your total taxable income for the tax year you made the gift.

How to claim tax relief

You can only claim Income Tax relief for the tax year you make the gift in.

If you complete a Self Assessment tax return you can make your claim on the form. You can also ask HMRC to lower your Self Assessment payments. If your gift means that you'll get a tax refund, you can ask HMRC to send all or part of it directly to a charity.

If you pay tax through PAYE (Pay As You Earn) you can write to your Tax Office with details of:

HMRC then changes your tax code for the current year or gives you a refund for an earlier year.

What records do I need to keep?

You need to keep the following records:

You'll need these documents to support your Income Tax relief claim.

Other tax advantages of giving assets to charity

Other tax advantages of giving assets to charity include:

Other tax efficient ways of giving to charity

There are other tax efficient ways you can give to charity like:

If you claim Income Tax relief for gifts of assets you've made to charity, the amount you can give through Gift Aid might be reduced because your total tax paid for the year is reduced. Or you may not be able to use Gift Aid at all if all your tax is refunded for that year.

Depending on your personal circumstances it may be more cost effective for you to sell an asset and make a Gift Aid donation out of the proceeds rather than giving the asset itself to charity.

Source of all information on tax efficient donations www.direct.gov.uk

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