Giving to charity- making the most of Gift Aid so charities can reclaim the tax

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If you already give to charity, it can get more money – without it costing you a penny. How? Through Gift Aid. Gift Aid lets charities reclaim basic rate tax. You have to be a taxpayer for them to do this.

Gift Aid on donations
If you donate to a charity through Gift Aid, the charity can claim extra money from the government in the form of basic rate tax. However, there are several conditions that you have to meet before the charity can reclaim tax this way:

  • You must be a taxpayer

SAVVY TIP: You don’t have to pay thousands in tax each year. All the rules say is that you must pay at least as much tax as is reclaimed through Gift Aid.

SAVVY TIP: If you know you won’t pay much tax in the current tax year but you paid more tax last year (enough to cover donations you made last year and this year), you can backdate your Gift Aid donations. This means they’re treated as though they were made in the previous tax year.

  • You must fill in a Gift Aid declaration. This is normally a short form that includes information about you (such as your name and home address).

SAVVY TIP: If you’re a higher rate taxpayer, you can reclaim the difference between basic and higher rate tax if you fill in a self-assessment form.

Regular giving to charity
In uncertain times, giving to charity every month may feel like quite a commitment, but regular donations are important to charities as they enable them to plan their budgets. How can you give regularly to charity?

  • Your employer may operate a payroll giving scheme. This means your donation is taken off your pay before you receive it and before you pay tax. Tax relief is automatically added at your highest rate, so it costs you less to make your donation.

SAVVY TIP: You don’t have to be employed to donate through payroll giving. If you receive payment from a company or personal pension and you pay tax on it through PAYE, you may be able to donate. If your employer or pension provider doesn’t run a payroll giving scheme, ask them if they’d consider setting one up.

  • You can give through a standing order or direct debit. With a standing order you set up a regular payment that only you can alter, whereas with a direct debit, the charity has the right to vary the amount you pay. However, charitable donations are different to paying a gas or telephone bill, because you agree in advance to pay a set amount.

SAVVY TIP: If you set up a direct debit, there should always be a record (the direct debit form you signed) of how much you agreed to pay and how frequently (monthly, quarterly, annually etc). If someone else (such as a street fundraiser) fills it in for you, take some time to check the details to make sure you know what you’ve agreed to. If the wrong amount is debited, it is your bank’s responsibility to refund it through the direct debit guarantee.

Donating assets
It’s not just giving through your payslip that can be tax efficient. If you have shares, or money in an investment fund, such as a unit trust, you may be able to donate them to a charity or sell them for less than the market value and claim tax relief.

SAVVY TIP: If, for example, you’re a 40% rate taxpayer and you give away £1,000 worth of shares, it will only cost you £600, as you’re able to claim tax relief at 40%. You also don’t have to pay capital gains tax on your donation either.

You should check that the charity you want to donate to is able to cope with your unwanted shares (as not all can) and check with HM Revenue & Customs that you will receive tax relief.

SAVVY TIP: If you only have a small number of shares that you don’t think it’s worthwhile donating, you can give them to ShareGift. It bundles shares together until it has enough to sell and donates the proceeds to a wide variety of charities. It can cope with donations of one or two shares.

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