Despite Gift Aid donations saving tax at a person’s marginal rate, donors still need to watch out for any pitfalls that might preclude tax relief.
Many individuals donate to charity simply for altruistic reasons, but this doesn’t mean the tax benefit should be ignored. With Gift Aid donations saving tax at an individual’s marginal rate, donors need to watch out for any pitfalls that might preclude relief.
If a Gift Aid donation helps to preserve a person’s entitlement to the personal allowance, the tax saving is 60%. For example, a gross donation of £1,000 costs just £400.
Any benefit received in return for making a donation must be minor. An acknowledgement of the donor’s generosity – such as a plaque – is permitted but should not take the form of business advertisement or sponsorship.
When it comes to right of admission, such as a National Trust membership fee, the donation must be at least 10% more than the normal admission cost. For example, £11 would need to be paid for entrance that would otherwise cost £10. Alternatively, admission rights can be for at least 12 months during public opening hours.
Other pitfalls to be aware of include:
If a donor’s income varies from year to year, donations can be made in the tax years when the tax saving is greatest.
Detailed guidance from HMRC on Gift Aid for individuals and companies can be found here.
–Femi Ogunshakin, Commercial Litigation & Tax Disputes Partner
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