People giving to charity is a good thing, right? So why reduce incentives to do it?
This week’s Budget announced a cap on the tax relief an individual can claim in any year. From April 2013 tax relief will be capped at £50,000 pa or 25% of income (whichever is higher). This could act as a significant disincentive to people making larger personal gifts, who are vital to charitable causes.
The cap includes tax relief on gifts of shares, land, personal donations and the endowment of personal Foundations. From experience, I know how important the current tax relief system is in helping charities secure major donations. When soliciting a potential major donor following a cultivation process, we suggest a ‘think about figure’ of the level of gift we would like them to make. The figure is arrived at by a mix of knowledge of the donor’s financial resources, past giving to our charity or other causes, the extent of their engagement with our cause and the impact they want to make. We also look to raise their sights with the figure – highlighting that they do have the capacity to make a six figure gift, for example, when they might previously have felt they were unable to. This is where tax relief is so important. A donor could make a gift of say £80,000. With gift aid at 20%, this would be worth £100,000 to the charity. The donor could then claim back tax relief on the difference between the 20% and whichever top rate of tax they were paying (40 or 50%). This meant the effective cost to a donor paying 40% tax on a £100,000 gift was £60,000. This tax relief meant many donors gave more than they would otherwise have done. Frequently I’ve had discussions with donors who were considering a £50k gift, which they upped to £80k (£60k cost to them) in order to enable the charity to receive £100k.
HMRC were quoted in Third Sector this week as saying “The government did not undertake this measure lightly, but it is necessary to take steps to ensure the very wealthy cannot simply wipe out their tax bills using charitable and other tax reliefs.”
It’s worth bearing in mind a few things in response to this:
- Gift Aid and tax relief on charitable donations are designed to offset the tax the donor has already paid on that income
- The charity sector is heavily reliant on larger gifts from a small number of individuals. Consequently disincentives to give at this level could be disproportionately harmful. NCVO/CAF’s 2011 UK Giving report www.ncvo-vol.org.uk/giving found that 58% of the UK adult population gave to charity in a typical month in 10/11, donating £11bn over the year. However, only 7% of these individuals gave over £100 per month, but these supporters were responsible for 45% of the total income from individuals.
- This won’t just impact mainstream charities. Churches, schools and a range of other organisations have charitable status.
- The credit crunch and recession have led this Government to make arguably the deepest public spending cuts in UK history. They want the charitable sector to play a bigger role in providing much needed services and support, and individuals to increase their giving to charity. So why reduce the tax incentives for personal gifts?
- The UK charity sector has worked hard over the last 20 years to nurture a culture of major giving from wealthy individuals. After the great Victorian philanthropists (check out your local library or civic buildings – highly likely to have been endowed by a Victorian industrialist with a magnificent moustache) UK major giving lagged behind the US. In recent years, major personal gifts have been vital in supporting our health, education, arts and social sectors. Major Donors have funded breakthroughs in cancer research, enabled students from disadvantaged backgrounds to go to university, funded projects which have got kids off the street. And much more. They play a vital role in our society, and if supported and nurtured, could play a much bigger one.
The Government says it will be discussing the impact of the tax relief cap with charity umbrella groups and the charities most affected before in comes into force in April 2013.
Let’s hope this is an opportunity for all charities to work together to campaign for a tax system which encourages personal giving, not stifles it.