Diocese of ChichesterDiocese of Chichester

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Higher-rate taxpayers

Many UK tax-payers realise they can increase the value of their donations to charity by 25% if they give through Gift Aid. If a basic-rate (20%) tax-payer gives £100, they have actually had to earn £125 and then paid £25 in income tax. The charity can claim back the £25 tax that has already been paid.

If a higher-rate 40% (or 50%) tax-payer gives their church £100, they have actually had to earn £166.67 (or £200) to make the gift – but the church can still only claim back the basic rate tax of £25. However the tax-payer is entitled to personally reclaim the difference on the grossed-up value of the gift 40% - 20% = 20% x £125 = £25. So the £100 gift only costs the 40% tax-payer £75 (and the 50% taxpayer £63.50).

If the 40% tax-payer then donates this repayment to the church, their £100 gift becomes worth a lot more to the church - £100 + £25 + £25 = £150. If the additional donation is made under Gift Aid, their total donation becomes worth 25% x£25 = £6.25 more = £156.25 in total to the church!

More details for individual higher-rate taxpaying donors can be found at the Tax-Effective Giving site.