Prior to 1990, tax relief for charitable donations was only available via a formal deed of covenant which had to be capable of exceeding three years. Payments by individuals and companies under a deed of covenant were paid after the deduction of basic-rate tax. The charity was able to reclaim the basic-rate tax from HMRC. Strictly, a deed of covenant was an outright gift.
In practice, in the case of membership charities HMRC accepted that the provision of membership benefits of up to 25 per cent of the payment (maximum £100) did not prejudice the tax position. Also, certain admission rights were not treated as consideration for the purposes of deeds of covenant.
Since 6 April 2000 there is no longer a separate tax relief for individuals or companies for payments made under a deed of covenant. All payments from that date fall under the Gift Aid scheme. As a transitional measure, charities were not required to obtain a signed Gift Aid declaration form for donors who had entered into a deed of covenant prior to 6 April 2000.
For any deeds of covenant executed after 6 April 2000, a charity must also ensure that the donor has signed a valid Gift Aid declaration form. It is possible to incorporate the requirements of both a deed of covenant (providing some degree of certainty as to future levels of income) and a Gift Aid declaration form into the same document.
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