If you receive unwanted Christmas presents this year, can you save some tax by donating them to charity and claiming Gift Aid?
When making a donation of money to charity, taxpayers are able to claim Income Tax relief under the Gift Aid scheme. However, goods are treated differently and the legislation in Part 8 Chapter 2 of ITA 2007 states: ‘Relief for some gifts of money to charities by individuals’.
Therefore, gifts of goods cannot meet the definition for Gift Aid and so Income Tax relief cannot be given.
There is, however, a system that allows for income generated from the sale of goods owned by individuals but sold by the charity acting as a selling agent to be considered under the Gift Aid scheme.
The individual allows the charity to act as an agent to sell the goods in their charity shop on their behalf. The goods legally remain the property of the individual, so when the goods are sold the income belongs to the individual and not the charity.
Following the sale, when the individual donates all or part of the proceeds to the charity, the donation meets condition A for a qualifying donation as per s416(2) ITA 2007 a ‘gift in the form of a payment of money’.
Under this scheme, the items, sales, and donations need to be recorded, and the individual has to confirm they are a UK taxpayer. Charities usually provide annual or quarterly statements showing the dates of goods sold, the amount of cash donated and the tax claimed. The individual must make a valid Gift Aid declaration to cover the cash donations they wish to make and will need these statements to claim the donation on their tax returns.