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Tax planning: Gift Aid donations

by Becky Dunbar

Making a charitable donation is a tax efficient way for taxpayers to make donations to charities and can be a very effective tool for tax planning. One important point that is often overlooked is the ability to carry back gift aid donations to a tax year after it has ended enabling taxpayers to retrospectively change their tax liability.

What is Gift Aid?

A charity which is registered and approved as a qualifying charity can claim Gift Aid relief on donations, as long a Gift Aid declaration has been completed by the donor. If the donation is made from income which has already been subject to the basic rate of tax, the donation will be grossed up by the UK basic rate of tax of 20%. The charity can claim an additional 25p for every £1 they receive.

Most charities make Gift Aid declarations very easy; you just need to tick a box to say that you are a UK taxpayer and that you pay Income Tax and or Capital Gains Tax at least equal to the 20% tax treated as deducted from your donation for the tax year of the gift. You also need to remember to record the date and amount of the donations and include them on your self-assessment tax return.

An important point to keep in mind, however, is that when you make your Gift Aid declaration, you are stating that you will have paid enough tax during the year to cover the 20% tax that the charity will claim from HMRC. If it turns out that you haven’t paid enough tax, then you will have to make good the tax claimed by the charity via your Self-Assessment Tax Return.

Where you are a higher rate taxpayer, declaring a Gift Aid donation on your tax return will provide you with tax relief calculated as the difference between the highest tax rate you pay and basic rate.


Anne makes Gift Aid donations of £100. The charity reclaims Gift Aid to make the total donation worth £125. As Anne pays 40% income tax she can personally claim back 20% of the gross donation: £25 (£125 x 20%). In practice this tax relief is given by extending the basic rate band.

How can I benefit from carrying back Gift Aid?

You can choose to carry back Gift Aid donations to the previous tax year if the donation is made before you submit the tax return for that year. Donations made now can be treated as if they were made in the tax year 2022-23 provided the 2022-23 tax return has not yet been submitted to HMRC.

This is particularly useful if your income fluctuates from year-to-year as you may not pay higher rate tax in the current year, but you did in the previous year.

If your taxable income for the year happens to fall between £100,000 and £125,140, you are exposed to a marginal tax rate of 60% on this income because your personal allowance is withdrawn by £1 for every £2 of income over £100,000. Gift Aid donations can combat this marginal rate as donations not only extend your basic rate band but also increase the £100,000 threshold over which your personal allowance is tapered away.

This can be a very useful tax planning idea so please let us know if you have made any donations before we finalise your tax return.

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