Are you feeling charitable?

When taxpayers make a donation to charity through the Gift Aid scheme, the donation is treated as being made net of basic rate tax, currently 22%. The charity can reclaim this tax. If the donor is a higher rate taxpayer, they may be able to claim additional tax relief.

So, if a taxpayer decides to make a donation of £78, the charity can currently reclaim tax of £22. If you are a higher rate taxpayer, you may be entitled to a further £18 tax relief, making the net cost of donating £60.

Gift Aid in 2008/09

The basic rate of tax is to be reduced to 20% for 2008/09. One of the consequences of this will be a reduction in the amount of tax relief a charity can reclaim on Gift Aid donations.

So, if a taxpayer decides to make a donation of £78 in 2008/09, the charity will only be able to reclaim £19.50. If you are a higher rate taxpayer, you may be entitled to a further £19.50 tax relief, making the net cost of donating £58.50.

So for a taxpayer it may be worthwhile making donations before the end of the tax year to maximise the value of the gift to the charity. Going forward into next year, taxpayers may want to increase their donations so that charities don’t lose out.