Claiming Gift Aid relief on your Tax Return

 

Tom says: “Many individuals have already submitted their details to their accountants for the preparation of their 2023/24 self-assessment tax returns.” 

 

But, depending on the mix of income, some taxpayers may find themselves in higher income tax bands, leading to a significant tax liability. These effects are often driven by the taxpayer’s adjusted net income, as outlined in section 58 of the Income Tax Act 2007 (ITA 2007). 

 

One way to reduce your adjusted net income is by making a personal contribution to a registered pension scheme or by making a donation to a UK charity under Gift Aid. 

 

Typically, by the end of the tax year, the full income may not be known, preventing pension contributions from being made after the fact. While it was previously possible to claim relief for contributions made in a subsequent year (under s641A of the Income and Corporation Taxes Act 1988), this option was abolished in April 2006. However, donations made now can still be treated as though they were made in the 2023/24 tax year. This reduces your adjusted net income by the donation amount (grossed up for basic rate tax) and also expands the income that is taxed at the basic rate. 

 

While the tax saving will not equal the full donation, it can provide a significant reduction in the overall cost to the donor. For example: 

 

• Jason had a high income child benefit charge in 2023/24, which could be reduced by donations made in this year. 

• Amad received a large bonus, resulting in the loss of personal allowances, which could be mitigated by a substantial donation made in July. 

• Pat, a pensioner with lower income, faced capital gains tax (CGT) on his buy-to-let property. He could benefit from using donations from both 2023/24 and 2024/25 to extend his basic rate band and reduce his CGT bill. 

 

Potential pitfalls 

 

When electing to treat a donation made in one tax year as if it were made in the previous tax year, careful attention is required. 

 

Key points to consider include: 

 

• The donation must be for a specific gift, and it is not possible to split a single donation across multiple tax years. 

• The election must be made in the original tax return and cannot be amended after submission. 

• The return must be filed by 31 January 2025. 

• Time constraints can pose challenges, but making the election can lead to valuable tax savings, even for those with more modest incomes. 

 

Additionally, using Gift Aid donations may help reduce your adjusted net income to £100,000, which could preserve eligibility for tax-free childcare. Taxpayers who are not in self-assessment, such as those required to file a CGT return within 60 days of selling residential property, may also benefit from expanding their basic rate band. 

 

Give Tom a call if you'd like to chat more about Gift Aid or any other accountancy query you may have. 

Find out more about Gift Aid online.