For the 2026/27 UK tax year, a higher rate taxpayer makes a net Gift Aid donation of £100 to charity and has otherwise fully used their basic rate band on other income. Under HMRC's Gift Aid rules, how does this donation affect their position when they complete their Self Assessment tax return?
- The charity's Gift Aid reclaim from HMRC already gives the taxpayer the full higher-rate benefit, so there is nothing further for the taxpayer to claim through Self Assessment
- HMRC extends the taxpayer's basic rate band by the £125 grossed-up value of the donation, so £125 of income that would otherwise be taxed at 40% is instead taxed at 20%, letting the taxpayer personally claim back £25 through Self Assessment
- The taxpayer must add the £125 grossed-up donation amount to their taxable income before working out how much tax they owe
- Because the donation was paid net rather than gross, no grossing up applies, and the taxpayer can only claim relief on the £100 actually paid, not on any grossed-up figure
Why B? And why not the others?
Correct answer: B. HMRC extends the taxpayer's basic rate band by the £125 grossed-up value of the donation, so £125 of income that would otherwise be taxed at 40% is instead taxed at 20%, letting the taxpayer personally claim back £25 through Self Assessment
Under Gift Aid, a charity reclaims basic rate tax on a donation, grossing up the £100 net gift to £125 (£100 x 100/80); for a taxpayer whose income sits above the basic rate band, HMRC gives the extra relief above basic rate not by cash refund on the net amount but by extending both the basic rate and higher rate bands by the full £125 grossed-up figure, so £125 that would have been taxed at 40% is instead taxed at only 20%, a 20 percentage point saving worth £25, which the taxpayer claims back through Self Assessment. The option claiming the charity's reclaim already delivers the full higher-rate benefit is wrong because the charity can only reclaim the basic rate portion; any relief above that rate must be claimed personally by the donor. The option requiring the grossed-up amount to be added to taxable income has the mechanism backwards: the relief works by expanding the rate bands the donor benefits from, not by increasing their income figure. The option denying any grossing up because the gift was paid net is wrong because Gift Aid donations are always treated as if grossed up at the basic rate for tax relief purposes, regardless of whether the gift itself was handed over net or gross.
Source: GOV.UK: Tax relief when you donate to a charity — Gift Aid; HMRC Self Assessment Helpsheet HS342 (Charitable giving)