Tax within the context of philanthropic giving
12 March 2013
With the birth of Philanthropy Impact, a new chapter in the development of professional philanthropy advice in the UK opens. It is timely then to consider how far we can map the state of major giving today?
To make a beginning, we would need a sense of its boundaries, and sadly we would fall at this first hurdle. We have no clear notion of ‘major’ giving. It is variously associated with gifts from anything over a few hundred, thousand, hundred thousand or million pounds. Alternatively, it is regarded as giving by wealthy people, with the donor as the focus, but notions of ‘wealthy’ similarly vary, from higher rate tax-payers (HRT), to millionaires, or the ‘super-rich’.
Without a definition, the other contours of the map remain elusive, including for example, the size, ‘population’ and location of major gifts/ donors, the proportion of wealth donated, the new entrants to the field and its exits, and last, but certainly not least, the total value of the major giving market and its key trends over time. We have a few indicators, of varying degrees of relevance. HMRC estimates that £450 million of gift aid relief is due to higher-rate tax-payers for 2012, indicating, very roughly, giving of around £1.8 billion. But the HRT income threshold is very low in relation to understanding the giving of the very wealthy, and we do not even know how giving is distributed within this group (many small or a few relatively large gifts?).
With little official data on giving or gifts, we are forced to rely on sample surveys. To provide an estimate for total value, however, a survey of major giving needs to know how well it represents its target
population, and because wealthy donors are an elusive and jet-setting group, we have no idea about the size of this population. Current surveys include:
1. General population sample surveys like NCVO/ CAF UK Giving, or the ONS Living Costs and Food Survey do not capture sufficient numbers of very wealthy donors or gifts or make accurate estimates.
2. Surveys dedicated to major giving such as the Coutts Million Pound Donor report tell us a lot about the million pound gifts of respondents, estimated at £1.2 billion, but cannot say what share of the total given through million pound gifts this represents, nor how much annual variation is simply due to differences in respondents, not in giving. An open question is what range of gift values below £1 million would need to be considered to get a true measure of major giving.
3. The Foundation Giving Trends (FFGT), provides a good estimate of annual trends and of total major giving through foundations, currently £1.3 billion, because it is based on the audited data of a consistent sample over time, but it does not tell us about direct giving outside foundations.
4. The Giving Index of the Sunday Times Rich List offers tantalising glimpses into super-rich giving, but its annual estimates are a red herring because figures are determined principally by who completes the survey in any one year (and many do not), and it mixes pledges, direct giving and gifts into and out of foundations.
5. Figures for charitable bequests are compiled from official estates data by Smee and Ford, but the estimated £2 billion includes a very wide range of charitable bodies
To sum up, our knowledge of the state of major giving today resembles the boxes of mixed jigsaw pieces you see at local jumble sales, containing many interesting bits with no indication of whether they all fit together, or how much is missing.
The recent flow of conflicting giving survey results bears witness to the risks of only seeing the bits, and never the full picture. We do not need the ‘map’ to understand aspects such as motivation, the role of philanthropy advice, demand for particular giving vehicles or the social impact of individual gifts. But without one, we cannot assess growth, change, or the impact of government, private and charity sector philanthropy initiatives. This gap is all our business. How can we tackle it?
In terms of research methodology, three main tasks are:
• to agree a common, standardised, approach to defining major giving for the purposes of measurement over time
• based on an agreed approach, to collect consistent data through:
– surveys of gifts at source, through donor reporting, foundations and companies’ annual reports and accounts
– surveys of gifts and legacies as received by charities and other charitable organisations;
– administrative data from HMRC on, for example, the costs of charitable tax relief, including inheritance tax relief.
•to collate data from different sources into a coherent picture, explaining differences in results– a vital stage missing from current measurement.
Each data collection exercise brings its own challenges, but we could begin by reviewing the strengths, overlaps and gaps in current data and identifying essential additional work. One challenge is the discontinuity in the boundaries of data collected from different sources: while tax data reports a donor’s total annual giving, individual charities can only report the particular gifts. Building a dataset of major gifts as received would require charities to participate widely in collective and standard reporting on their major gifts. Carrying out a new survey of donors with an adequate sample of major giving would come at a cost, and it is not clear who would pay. Would charities and infrastructure bodies be willing to pool current research resources to achieve a better result?
Defining what we want to know and scoping what is feasible are the first steps. We can’t have everything. HMRC has offered updated analyses on use of Gift Aid and payroll giving by higher and additional rate taxpayers, including the proportion of higher rate taxpayers who report using Gift Aid, and how this breaks
down by gift size and percentage of taxable income given. Currently such data are only available up to 2003-04, based on the 500,000 or so higher rate taxpayers who claimed Gift Aid relief on self-assessment tax returns at that time. Data show that about threequarters give around £1000 or less, and that just 2% of such donors gave more than £10,000 per annum, around 59,000 donors. Current figures are likely to be higher than this, because of growth in Gift Aid. Tax data excludes those not claiming tax relief, gifts out of foundations or companies, and pledges, but could include legacy giving. It offers one fairly solid set of parameters on which to build understanding of major giving and design supplementary research. Certainly donors giving £10k or more, or gifts of this size, are poorly represented in current research.
There is clearly considerable information out there, but the preconditions for joining up these bits are agreeing what we want, a general will to prioritise the
need for a better evidence base, and a willingness to work together and share research data and resources to get it. Are we ready for the challenge?