The Chancellor of the Exchequer Rishi Sunak announced at the Spring Statement that the rate of basic rate income tax in the UK will be reduced from 20% to 19% with effect from 6 April 2024. This will of course have a serious longer term impact on the charity sector and community amateur sports clubs (CASC) as Gift Aid is linked to the basic rate of income tax.
Gift Aid (based on the current rate of basic rate income tax at 20%) currently allows the sector to claim Gift Aid on eligible donations at the rate of 25p for every £1 of donation received. So, for every £10 donated under gift aid, the value of the gift to the charity or CASC will be £12.50. After 2027, the amount that could be reclaimed on eligible Gift Aid donations will be 23p for every £1 of donation received, which is a significant drop.
The change will be substantially mitigated through the introduction of a three year transitional period for all charities and CASC’s that will apply between 6 April 2024 and 5 April 2027. This means that charities and CASC’s will receive a transitional relief of 1% on all donations eligible for Gift Aid during this period, keeping the effective rate of basic rate income tax at 20%.
The Charity Tax Group (CTG) has announced that this transitional period will provide some much needed breathing space for the sector while it adjusts to this change in the basic rate of income tax. They estimate that the transitional relief will safeguard over £250m of charity income, which would otherwise have been lost during this three year period.
The changes including the details around the transitional relief will be set out in a future Finance Bill at a later date. The longer-term impact on the charity sector after 2027 remains to be seen when the value of Gift Aid is reduced.
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