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In the UK, how much is income tax reduced by charitable donations?

When filing, are there any special requirements to qualify for the deduction or credit?


I'm not yet familiar with U.K. tax, but I do know what to search for. I came across the following references – the first is definitive since it's from the web site of Her Majesty's Revenue and Customs – HMRC. What I found particularly interesting is that HMRC's "Gift Aid" mechanism provides for most of the tax relief to go back to the charity.

Excerpts from HM Revenue & Customs: Giving to charity through Gift Aid:

How Gift Aid works

The Gift Aid scheme is for gifts of money by UK taxpayers. Charities or CASCs take your donation - which is money you've already paid tax on - and reclaim basic rate tax from HM Revenue & Customs (HMRC) on its 'gross' equivalent - the amount before basic rate tax was deducted.

Basic rate tax is 20 per cent, so this means that if you give £10 using Gift Aid, it’s worth £12.50 to the charity. [...]

Claiming back higher rate tax

If you pay higher rate tax, you can claim the difference between the higher rate of tax (40 per cent) and the basic rate of tax (20 per cent) on the total (gross) value of your donation to the charity or CASC.

For example, if you donate £100, the total value of your donation to the charity is £125 - so you can claim back 20 per cent of this (£25) for yourself. You can make this claim on your Self Assessment tax return if you were sent one. [...]

See also HM Revenue & Customs: Gift Aid: the basics

Excerpts from Gift Aid – Wikipedia, the free encyclopedia:


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 [...] and the charity can reclaim the basic rate income tax paid on the gift from HMRC. [...] Higher-rate taxpayers can claim income tax relief, above and beyond the amount claimed directly by the charities. [...]

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. [...]


Some amplification of Chris W. Rea's answer:

The basic principle is that donations to recognised charities are exempt from income tax, so you can effectively make them out of your gross salary. For ease of administration, the Gift Aid mechanism is normally used so that basic rate tax is reclaimed without the taxpayer having to do anything apart from accepting the declaration - though the receiving charity has to do some work instead. Many higher-rate taxpayers will already have to fill in a tax return, and those that don't can write to HMRC separately to claim the rebate.

There are some alternatives to direct use of Gift Aid:

  • Some employers operate a "payroll giving" scheme where donations are made directly out of gross salary. In that case, Gift Aid doesn't apply at all, and there's no extra rebate for higher rate taxpayers.

  • There are some charities, such as the Charities Aid Foundation that just exist to route donations to other charities. They typically operate "charity accounts", which you can fund with either payroll giving or the Gift Aid route as with normal donations. You can then pass the money onto "real" charities when you want. The advantages of this approach are firstly that you can get the tax benefit at the time you fund the account rather than when the final donation is made, and secondly that small charities find Gift Aid an administrative burden and this method moves the burden to someone else. The downsides are that typically there is an administrative fee - 5% with Charities Aid Foundation - and that once money is in a charity account you can't get it back for yourself.

There are also some extra twists:

  • With Gift Aid, in addition to the 25% that comes from the basic rate tax rebate, until April 2011 charities also get an extra 3%. This is a transitional provision because basic rate tax used to be 22% (which was equivalent to a 28% rebate), so since in practice people gave the same amounts out of net pay after the tax change as before, charities lost out.

  • Although the general principle is that only genuine donations are tax exempt, so you can't receive anything in exchange, there are some exceptions. The most significant ones are:

    The full list of exemptions is here: http://www.hmrc.gov.uk/charities/gift_aid/rules/index.htm

  • Some charity shops operate a scheme where when you give them things to sell, they treat those things as still belonging to you until they sell them, and then consider the money from the sale as a donation from you, which thus attracts Gift Aid. (They have to write to you at that point to give you the chance to change your mind about the donation, but I doubt people ever do that!)

If you're a higher rate tax payer, it's well worth keeping records of donations, as they can soon add up to a nice refund :-)


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