Gift Aid and Legacies

Each year, charities need to raise millions of pounds to ensure they can continue giving their much needed services and support. Gift Aid and Legacies are both powerful fundraising tools for charities. Read on to discover exactly how they work and how it benefits the organisation.

Gift Aid

Gift Aid – An Overview

Gift aid is tax relief on money donated to UK charities. The Inland Revenue treat donations as if the donor had already deducted basic rate tax from them. The charity can then reclaim this tax to increase the value of a donation.

How Gift Aid Works

Charities receive your donation (which is money you've already paid tax on), and then reclaim tax on its 'gross' equivalent (its value before tax was deducted) at the basic rate of 22 per cent. In practice, this means that if you give £10 to charity using Gift Aid, the donation is actually worth £12.82 to the charity when they claim the tax back.

The Gift Aid scheme is only for monetary gifts and there are rules limiting the value of benefits you can receive in return. Click here for full details from the UK government website

Who can use Gift Aid?

You can use Gift Aid if the amount of tax you have paid in any tax year is at least equal to the amount the charity is reclaiming on your behalf. You can calculate the amount of tax the charity will reclaim by multiplying the amount you give by 22 / 78.

If you're a higher rate taxpayer, you can claim the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 22 per cent on the total value to the charity of your donation (the 'gross donation'). You make this claim on your Self Assessment tax return.

If you do not pay tax, unfortunately you cannot use Gift Aid.

How to make a donation using Gift Aid

When you make a donation to charity, they will normally ask you to consider making your donation using Gift Aid. If you agree, they will give you a simple form to complete declaring that you wish to make donations under Gift Aid. Whilst you need to complete a separate declaration form for each charity you wish to donate to, one form can cover every gift made to the same charity.
 

Gift Aid Rules

Donors must:
- pay enough UK income tax and/or capital gains tax themselves to cover the amount of tax the charity will reclaim
- give the charity a Gift Aid declaration, which should include their name, home address, the charity’s name, details of the donation – saying that it is a gift aid donation, and confirmation that they have paid UK tax – to cover the tax the charity will reclaim.

A declaration can be made to cover individual donations, a series of donations, any donations made during a specified period, or to cover all future donations. They can also be backdated for up to 6 years prior to the date of the declaration, provided the donation was made since 6 April 2000.
 

More information on Gift Aid can be found on the Inland Revenue website.

Legacies

Legacies are donations made to charities by someone in their will. They represent the largest single source of voluntary income for charities, yet fewer than 1 in 20 people support charities in their wills. By increasing the number of people who leave money to charity by just 2%, it is estimated that an additional income of £200 million would be generated for the voluntary sector.

'Remember A Charity' is a consortium of over 140 UK charities backed by a growing number of legal practitioners, independent financial advisers and professional bodies. Launched in 2002, it is the largest combined effort of its kind in the UK. The campaign’s aim is to raise awareness of charitable will making and make legacy giving the norm.

A key element in this is the need to encourage people to get professional help to prepare or update their wills to ensure that their charitable intentions are fulfilled. It is important for solicitors to realise the value of legacies to charities, and asking clients if there are any favourite causes they would like to remember in their will is vital. Carole Hope, a partner at Edinburgh firm Murray Beith Murray, says: “Charities rely heavily on money left to them by will. They should always be made aware when there is a possibility of a legal rights claim as the sum they receive might end up much smaller than expected and there may be other consequences.”