Gift Aid

Gift Aid is a UK tax incentive that enables tax-effective giving by individuals to charities in the United Kingdom. Gift Aid was introduced in the Finance Act 1990 for donations given after 1 October 1990, but was originally limited to cash gifts of £600 or more. This threshold was successively reduced in April 2000 when the policy was substantially revised and the minimum donation limit removed entirely. A similar policy applies to charitable donations by companies that are subject to the UK corporation tax.

Gift Aid was originally intended for cash donations only. However since 2006, HMRC compliant systems have been introduced to allow tax on the income earned by charity shops, acting as an agent for a donor, to be reclaimed. In order for the charity to operate effectively they will need HMRC-approved systems to be able to record and track the progress of each item from receipt to sale and confirm with the donor that the donation should still go ahead.[1] In the financial year 2014/5, Gift Aid to charities amounted to £1.19bn.[2]

The Finance Act 2010 extended Gift Aid to charities within EU member states, Norway and Iceland, rather than those just inside the UK.[3] Gift Aid was extended to include Liechtenstein in 2014.


Gift Aid allows individuals who are subject to UK income tax to complete a simple, short declaration that they are a UK taxpayer. Any cash donations that the taxpayer makes to the charity after making a declaration are treated as being made after deduction of income tax at the basic rate (20% in 2011), and the charity can reclaim the basic rate income tax paid on the gift from HMRC. For a basic-rate taxpayer, this adds approximately 25% to the value of any gift made under Gift Aid. Higher-rate taxpayers can claim income tax relief, above and beyond the amount claimed directly by the charities. The rate of the relief for higher-rate taxpayers in 2011 is usually 20%, the difference between the basic rate (20%) and the higher rate (40%) of income tax, although recipients of dividend income (taxed at 10% and 32.5%) can achieve a higher rate of tax relief (22.5%).

Originally, declarations had to be made in writing. Declarations can now be made orally, but the charity must confirm the declaration in writing and keep a copy of the confirmation. If the taxpayer incorrectly makes a declaration, the charity is still able to reclaim the tax that should have been paid on the gift.

Gift Aid can only be reclaimed on money donated by UK taxpayers. Non-UK taxpayers can make donations but the donation will not be eligible for a tax reclaim from HMRC.

The first charity to introduce Gift Aid on donated goods – where the tax is reclaimed on the value of the goods when sold – was Sue Ryder Care.[4]

A practical example

Mr Burns is a higher-rate taxpayer, paying 40% income tax on part of his income. He has made a Gift Aid declaration to the charity. As a result:

The benefits to the charity

For 2008-11

£100 donation
£25 refund from HMRC
£3.21 supplement from HMRC
Total to charity = £128.21

After 2011

£100 donation
£25 refund from HMRC
Total to charity = £125

The cost to the donor

Since 6 April 2008

£100 donation
less £25 refund from HMRC in due course
Total cost to Mr Burns = £75

Revenue to HMRC

Not all monies paid to HMRC during this transaction are refunded.

£125.00total received by charity £125.00gross income before taxes
less£25.00the refund from HMRC to the charity less£50.00higher rate (40%) imposed on giver
equals£100.00 paid to charity equals£75.00net income received by giver
less£25.00the refund from HMRC to the giver less£75.00cost of donation to giver
equals£75.00cost of donation to giver £0.00difference kept by HMRC

The giver has only really donated £75 of net income, despite having made a payment of £100.


  1. "Selling goods on behalf of individuals". HM Revenue and Customs. 2014-12-08. Retrieved 2015-04-16.
  2. Total Gift Aid received by charities rose by £140m last year
  3. "The charities' guide to the Finance Act 2010". Sift Media. Retrieved 1 May 2015.
  4. "Sue Ryder Care reclaims £1million extra from the tax man". Sue Ryder Care. 2007-08-28. Retrieved 2009-04-23.


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