CHRISTMAS is not just about giving expensive gifts, with many people choosing to donate the money they would have spent on presents to charity instead.

While charities such as Oxfam and WaterAid offer charity gifts like a hand pump to provide safe drinking water or a toilet for a third world community, anyone wanting to give cash should consider doing so tax efficiently in order to maximise the mount the charity receives.

Using Gift Aid means the charity can claim back the basic rate of income tax already paid on the donation, which is equivalent to an extra 25p for every £1 given. The caveat is that the person making the donation must be a UK taxpayer and pay at least as much in income or capital gains tax as the charity can reclaim in Gift Aid.

Higher-rate or additional-rate taxpayers can claim the difference between the basic rate on the donation and the rate they pay, usually on their self-assessment tax return. If a higher-rate taxpayer makes a donation of £100, for example, the charity could claim Gift Aid to bump the donation up to £125 then the taxpayer could claim back 20 per cent - the difference between the basic rate of 20 per cent and the higher rate of 40 per cent - of that sum.

Some companies, including BT, Santander and Tesco, run a Payroll Giving scheme, which allows employees to donate to charity from their wages before any tax is deducted. A £1 donation would therefore cost 80p for a basic-rate taxpayer, or 60p or 55p for those who pay tax at the higher or additional rates.

Trent Lyons, a financial analyst at Chiene & Tait Financial Planning in Edinburgh, said: “Payroll giving is a great way to spread out the cost of donating over the year. Individuals also benefit from immediate relief at the highest rate of tax.”

Changes to tax on dividends that came into effect in April 2016 could potentially affect some Gift Aid donations.

Karen Currie of law firm Wright, Johnston & Mackenzie said: “The 10 per cent tax credit on dividends was abolished in April 2016 and replaced by an annual dividend allowance of £5,000. Someone whose income is less than the personal allowance of £11,000 and who receives less than £5,000 of dividend income might not therefore be eligible for Gift Aid.

“The dividend tax changes could also affect wealthy benefactors who receive large sums of dividend income and give away a high percentage of their income.”

Donations of landholdings or quoted shares can be tax efficient, according to Lyons, who said that donors would pay no capital gains tax and would also be entitled to income-tax relief on the value of the gift.

“The charity also keeps the full proceeds from any sale of the assets,” he added.

If tax-efficient gifts are left to charity in a will they will be exempt from inheritance tax (IHT), with the person making the bequest benefiting from a lower rate of IHT at 36 per cent if they leave more than 10 per cent of their net estate to charity.

Anyone wanting to make a donation directly to a charity should check how the money is spent. Oxfam, for example, calculates that 82p of every £1 donated supports Oxfam causes with the rest spent on support costs and invested to help generate further revenue.

Fundraising websites JustGiving, MyDonate and Charity Choice are also popular, although not all operate in the same way. Some sites charge the charities admin or transaction fees, which make a dent in donations. Donors might also be charged a fee to use a particular credit or debit card.

MyDonate is a not-for-profit service from BT. It does not charge charities to register with the site, so the only fee is a 1.3 per cent charge for a credit card or 15p for a debit card. A £10 donation, which went up to £12.50 after Gift Aid, would turn into £12.37 for the charity if paid with a credit card or £12.35 if made using a debit card.

JustGiving’s charging structure is different. It takes a five per cent fee from the Gift Aid on each donation, plus credit card fees of 1.3 per cent or 16p for a MasterCard debit card and 17p for a Visa debit card. In other words, a £10 donation with a credit card - £12.50 including Gift Aid - would cost the charity 76p, so the good cause would receive £11.74.

In addition, JustGiving charges charities a monthly subscription fee of either £15 or £39 plus VAT, depending on the amount of money they raise. JustGiving has, however, recently begun rolling out a free membership plan for small charities to launch crowdfunding campaigns.

An alternative is to open a Charity Account with the Charities Aid Foundation (CAF), which allows users to decide how and when to give their money - and to which charity. However, the account must be funded with a monthly payment of £10 or a one-off donation of £100. The CAF also deducts a fee of four per cent for payments up to £20,000 a year and one per cent for sums over £20,001.