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When you donate money to a charity or Community Amateur Sports Club (CASC) under Gift Aid, the organisation can claim an extra 25p from HMRC for every £1 you give. This increases the value of your donation at no extra cost to you.
If you pay higher or additional rate tax, you can also claim further tax relief on your donation. This is based on the difference between the basic rate and your highest rate of tax. The relief can be claimed through your self-assessment tax return or by asking HMRC to adjust your tax code.
For example, a £1,000 donation becomes £1,250 once Gift Aid is added. A higher rate taxpayer can then claim additional relief of £250 if they pay tax at 40%, or £312.50 if they pay tax at 45%.
You must have paid enough tax in the relevant tax year for your donations to qualify. In general, the total value of Gift Aid donations cannot exceed four times the amount of tax you have paid. If too much relief is claimed, you must notify the charity and repay the excess to HMRC.
You can also donate directly from your wages or pension through a payroll giving scheme if your employer operates one. This allows donations to be taken before Income Tax is deducted, giving you immediate tax relief at your highest rate.