CAF survey says proposed tax relief cap will affect giving
Eight out of 10 major philanthropists say giving will be affected by the tax relief bombshell dropped on major donations by George Osborne in last week’s Budget, according to a survey of more than 200 philanthropists carried out by the Charities Aid Foundation (CAF) over the weekend.
Nearly half of the donors, who have all given an average of over £50,000 a year to charity over the past three years, say the tax changes that will see a cap of £50,000 or 25% of annual income on tax relief claimed from next April could force them to cut donations by more than 40%. While 83% of donors questioned said they felt that the change would reduce philanthropic donations in some way.
Christian charity Stewardship has calculated that donations to its cause totalling £11.7m in the last year would have been at risk under the government’s proposal.
The Cabinet Office has also reportedly received a slew of responses from wealthy donors reporting how it would affect their giving.
The sector has mobilised against the policy around the Give it Back George campaign, launched by NCVO, Charities Aid Foundation and Philanthropy Review. In the space of five days 546 organisations and 678 individuals had signed up to the campaign that wants to see the cap on charitable donations repealed.
Universities which have seen an increase in cash donations from £517m to £560m as reported in the just published Ross-CASE report, are also concerned that the policy will adversely affect donations.
Major donors have played a key role in helping Oxford University reach its fundraising target of £1.25bn in under eight years - the fastest such an amount has been raised by any university in Europe. Over 3,500 gifts of more than £25,000 each have been donated, of which more than 500 have been for more than £250,000.
Kate Hunter, executive director of the Council for Advancement and Support of Education (CASE) Europe, one of the key partners in the report, said: “Our report tells a positive story about the culture shift toward philanthropy in our universities. It’s fantastic to see an increase in cash income over the past year and a growing number of alumni and other donors getting involved. We are, however, concerned that after years of hard work to grow a genuine culture of giving to higher education, the plans to introduce a new cap on income tax relief could be a disincentive to some donors. We feel this sends entirely the wrong message to donors about the need for and value of their gifts to the sector.”
Chris Cox, director of development at the University of Manchester and chair of the Ross Group of Development Directors said: "The survey demonstrates that giving and philanthropy are now important and distinctive features of the UK higher education landscape, and that the Government's matched funding programme had real impact.
"Government now needs to move quickly to ensure that the Budget proposals on tax relief don't stop progress dead in its tracks. Philanthropists choose to give serious money to make a difference to the lives of others. They choose that over conspicuous consumption or protecting their own wealth. Through its consultation, the government needs to decide which type of behaviour it wants to encourage among the wealthy. The only way of sending a clear message would be to exempt charitable contributions from the new cap."
Many major donors have also spoken out in the press since Osborne’s announcement, saying it sends the message that donors are tax dodgers and flies in the face of the government’s policies to promote more giving.
John Studzinski, senior managing director of the Blackstone Group, who works with many charities, founder and chairman of the Genesis Foundation and a major donor , says in an article in the Independent on Friday: “By limiting tax relief for philanthropists, the Government wants to look as if it is tough on the rich – perhaps to court future votes. But by limiting charitable giving it is getting tough on a much larger body of people: the very recipients of that charity. More than that, it is stunting philanthropic learning and failing to endorse individuals who, whatever their motivation, feel their money could benefit society.”
In another report, Sir Vernon Ellis, the chairman of the English National Opera, who donated £5m to help restore the London Coliseum and is a member of the Philanthropy Review, said: "This is a mystifying proposal that flies in the face of calls for an increase in philanthropy. It sets a tone that positions charitable giving as a form of tax dodge and it would undoubtedly undermine the ability of arts organisations and indeed all charities to raise money."
Sir Vernon was one of a small delegation led by Sir Stephen Bubb of ACEVO who met for talks this week with Civil Society Minister Nick Hurd who it is hoped “will lead the charge” from within Whitehall. DCMS Minister Jeremy Hunt is expected to meet with the Arts and Heritage sector soon.
The Treasury is also expected to meet with the sector next week. It has yet to issue more details of the policy. HMRC has said in a statement that draft legislation will be released in the usual way for consultation later in the year.
It adds: "Philanthropy is important to this government and the decision to cap reliefs against charitable giving was not taken lightly. It is for this reason that the government will explore with philanthropists ways to ensure this new limit will not significantly impact upon charities that depend on large donations. Furthermore, the new Cultural Gift Scheme has been specifically exempted. "
In explaining how the cap might affect donors it has issued a number of illustrations.
- A donor gives £40,000. The charity claims Gift Aid, grossing the donation up to £50,000. This means the donor has just reached the cap because the total donation is £50,000 and the reliefs cap is £50,000 assuming the donor’s income is below £200,000 (and that no other reliefs have been claimed)
- A donor gives £50,000. The charity claims Gift Aid grossing the donation up to £62,500. Assuming the donor’s income is below £200,000 his cap is £50,000 so only £50,000 of the donation is eligible for tax relief (assuming that no other reliefs have been claimed). However, the charity will keep Gift Aid reclaimed from HMRC of £12,500.
- A donor gives £95,000. This is grossed up under Gift Aid to £118,750. Assuming the donor’s income is below £200,000 the cap is £50,000 so only £50,000 of the donation is eligible for tax relief (assuming that no other reliefs have been claimed). The charity will keep Gift Aid reclaimed from HMRC of £23,750.
However as Stephen Lloyd, senior partner at Bates Wells & Braithwaite London LLP, points out there is a fundamental flaw in how the tax scheme pans out in practice.
“How can a charity fundraiser give any certainty to a higher rate tax payer about the rate of tax reliefs they all get on their donation? The donor will only fill in their tax return up to 18 months later after making the gift and claim the relief. The relief that will then be available will be completely dependent on whether or not they have any business loss relief to claim; the amount of donations to other charities and their income in that year.
“Therefore one of the key selling points for fundraisers soliciting donations from higher rate tax payers will torpedoed at a stroke. There is one very simple thing the government should do. Remove charitable donations from the cap. It can then apply to business loss relief only.”
The cap does not apply to areas where there are existing caps on tax reliefs eg enterprise investment schemes, venture capital trusts and pension contributions.
CAF chief executive John Low says the cap does not only affect the very wealthy: “In some cases people receiving legacies or lump sum investments make major donations and rely on tax relief to help them back good causes.
“At a time when charities are under increasing pressure, due to funding cuts and greater need in society, the government should be encouraging major donors to dig deep in their pockets, not changing the tax rules to put them off making donations.”
He added: “This move seems to have been ill conceived and at odds with the government’s concept of a Big Society.”
However other budget announcements affecting the charitable sector were welcomed including:
- Confirmation that the Gift Aid Small Donations Scheme will be introduced with an increase on eligible donations to £20
- Reduction of administrative burdens on charity shops that claim Gift Aid on donations
- Confirmation that the cost-sharing exemption will finally be introduced in Finance Bill 2012
- Confirmation of the temporary arrangements on the VAT treatment of freight transport services performed wholly outside the EU
- Confirmation of the new IHT rate for deaths on or after 6 April 2012 where 10 per cent or more of a deceased person’s net estate is left to charity.
- Announcement that the Treasury will conduct an internal review looking into the financial barriers to social enterprise.
But another concern is the withdrawal of zero rate on alterations to listed buildings which is likely to affect heritage charities and universities.
The Charity Tax Group has expressed regret that despite consultation with the sector charities have been removed from the reduced rate without notifying key stakeholders. This estimated cost to charities and businesses is £85m a year and is likely to affect 1,000 buildings. It anticipates the cost to charities will be at least £50m. There are transitional measures for those locked into contracts entered into before 21 March 2012 and the measure takes effect from 1 October 2012.
You can sign up to the Give it back George campaign here
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