50% higher rate tax is good for Gift Aid donations
Howard Lake | 28 March 2010 | Blogs
The rise in higher rate tax to 50% taxpayers which comes into effect on 6 April 2010 is good news for charities in terms of Gift Aid. Admittedly, some donors might see the drop in income as a reason not to give at all, but on the assumption this will not be a widespread reaction, fundraisers now have a good opportunity to point out to their wealthier donors how far they can make their donations go with Gift Aid.
Charity finance and IT specialists Sayer Vincent recently explained why this is the case:
“Donors receive tax relief on the difference between the basic rate and the highest rate of tax they pay. Charities reclaim the basic rate income tax and that has to be added back to work out the gross amount on which higher rate gift aid is available. For example, if a donor gives £100 cash, the gross gift is £125 because it includes the basic rate income tax that had been deducted.
“The higher rate tax relief on this is £125 x (50% – 20%) = £37.50 In other words, it costs a 50% higher rate donor £62.50 to make a gift worth £125 to the charity. Or more simply, it costs them £50 to make a gift worth £100 to charity. So a useful message for fundraisers to get out to donors”.
Indeed, this development sweetens somewhat the pill of the reduction of the Gift Aid reclaim period from six to four years which comes into effect on 1 April 2010.
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.