A Charitable Way to Beat Taxes in the Afterlife

COVID-19 has been a catalyst for change in many aspects of our lives, not least the migration to flexible working, which would have taken many more years without the pandemic’s brutal intervention. It has also changed the landscape for charitable donations. Immediately prior to the outbreak, a little more than half of all donations took the form of notes and coins. By May 2020, this had dropped to just 9%.

Capturing a greater proportion of donations electronically in theory makes it easier for donors and charities alike to benefit from tax relief. Even so, UK charities are missing out on more than 560 million pounds ($700 million) of potential tax relief every year. And many donors are not aware that they could also benefit.

The Gift Aid scheme tops up the value of a donation by applying tax relief at the basic income tax rate of 20%. This is paid automatically if you tick the Gift Aid box on a donation form and provide basic details, such as your name and address. The relief boosts the value of a 100-pound gift to a registered charity to 125 pounds at no additional cost to the donor.

For higher-rate taxpayers, however, that is quite literally only half the story. Since their marginal tax rate is 40% there is a further 25 pounds of relief available (or 31.25 pounds for those in the top tax bracket paying 45%). This extra relief is paid to the donor rather than the charity. Crucially though, payment is not automatic: It must be claimed through your annual Self-Assessment tax return.