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December tends to be the peak time for charitable giving in the UK, as many people find themselves filled with generosity over the festive season.
If you’re donating money to a registered charity this month, you’ll likely be asked to fill out a Gift Aid declaration.
Although this is mostly to benefit the charity by boosting the amount they receive, around one in five UK taxpayers can also claim money back for themselves, because they fall into the higher or additional-rate tax bands. Here’s what you need to know.
What is Gift Aid and how does it work?
Gift Aid is a form of tax relief on charitable donations. When you donate to a registered charity, they can claim 25 per cent of your donation value back from HMRC.
So, if you donate £100, the charity receives £125 in total.
This additional £25 is the basic-rate tax that HMRC has previously deducted from £125 of your gross income.
Benefits for the donor
If you’re a higher or additional-rate taxpayer, you can personally benefit from Gift Aid donations too. Since HMRC only passes on basic-rate tax to the charity, and you’ve paid tax at above the basic rate, you’re entitled to claim back the difference.
So, for every £100 you donate, the charity can claim back £25, and you can claim another £25 (higher-rate tax) or £31.25 (additional-rate tax) back yourself.
You simply need to:
- Provide a Gift Aid declaration with your donation (if you didn’t at the time, you can do this now)
- Keep a record of all your Gift Aid donations
- Report them in your self-assessment tax return (or by calling HMRC)
Further benefits for high earners
If your income is between £100,000 and £125,140 and you’re therefore affected by the tapering of your personal allowance, the benefits of Gift Aid are even more significant.
As with any Gift Aid donation, for every £100 you give, the charity gets £125. You’re a higher-rate taxpayer, so you can claim back £25.
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Capital at risk.
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In addition, the donation will reduce your adjusted net income by the gross amount (£125), so you’ll regain £62.50 of your lost personal allowance.
This creates a further tax saving of £25 (40 per cent of £62.50). In short, for every £100 you give, you get a total of £50 back.
High earners with young children
You can also use Gift Aid donations to reduce your adjusted net income to under £100,000, which may allow you to qualify for free childcare hours (your eligibility depends on the specific childcare scheme, and both parents’ adjusted net income).
This can be very cost-effective.
For example, if you earn £110,000, reducing your adjusted net income by £10,000 will qualify you for free childcare hours worth £9,600. You can do this by making a Gift Aid donation of £8,000 (worth £10,000 to the charity). You can then claim £4,000 in tax relief, meaning the total cost to you is just £4,000.
Bear in mind that there are other ways to reduce your adjusted net income, such as making pension contributions, which might align better with your financial goals.
But if you regularly donate to charity anyway, it might benefit you to look at how much you give.
Limitations of Gift Aid
As with any tax relief, there are some limitations:
- To participate in Gift Aid, you must be a UK taxpayer and have paid enough in tax (income tax or capital gains tax) to cover the amount the charity claims
- You can’t claim back more tax than you actually paid in a tax year
- You must have paid the donation with your own money
- You can’t have received anything in exchange for your donation (including raffle tickets)
You should be particularly careful if you’re a non-taxpayer (for example, because your total income falls within the personal allowance). In this case, if you complete a Gift Aid declaration and the charity claims an additional 25 per cent from HMRC, you’ll owe HMRC that money.
Check your donations before 31 January
Another useful feature of Gift Aid is that you can claim relief for a donation made in the current tax year when you submit your tax return for the previous year.
For example, your upcoming tax return for the 2024/25 tax year can include Gift Aid donations you’ve made so far in the 2025/26 year.
That’s particularly beneficial if you were in a higher tax band last year than you are this year, perhaps because you’ve retired, or you’re self-employed with a fluctuating income.
Your tax return for 2024/25 is due by 31 January 2026, if you’re filing online. Before filing, make sure to review your Gift Aid donations in that year, and consider any that are more recent that you may want to carry back.
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