Gift Aid is a UK government scheme that allows charities to reclaim basic-rate income tax (20%) on donations made by UK taxpayers, adding 25p to every £1 donated at no cost to the donor.
When a UK taxpayer signs a Gift Aid declaration for a charity, the charity can reclaim 25p in tax for every £1 donated (because the donor has already paid tax on that income). A £10 donation becomes £12.50 for the charity. The donor must have paid at least as much income tax as the charity reclaims.
Higher-rate (40%) and additional-rate (45%) taxpayers can claim additional tax relief on Gift Aid donations through their self-assessment tax return. A higher-rate taxpayer donating £100 can claim 20% tax relief — effectively reducing the cost of the £100 donation to £80, while the charity receives £125 (the donated £100 plus 25% Gift Aid reclaim).
Benefits-in-kind given in return for a donation (e.g. a prize worth more than 25% of the donation, or tokens with a monetary value) disqualify Gift Aid. The donor must be a UK taxpayer.