Giving to the full
6 June 2011
Changes to the Government’s policy on philanthropy are in the spotlight as the Big Society agenda takes shape, say Christopher Groves and Alana Lowe-Petraske
With a new philan-thropy strategy in place and the Government’s ’Giving’ green paper released in December 2010, followed by the Budget in March this year and the ’Giving’ white paper on 23 May, the Big Society agenda is finally beginning to take shape. This looks set to be the year of philanthropy.
A key element of the Government’s recent focus on philanthropy has been increasing legacy giving. Despite references to 10 per cent giving at the launch of the philanthropy strategy and the establishment of giving norms in the green paper, many were nevertheless surprised at the concrete announcement in the Budget that, from 6 April next year, those who donate 10 per cent or more of their net estate to charity will receive an inheritance tax break of one-tenth.
A consultation paper is due to be published on 9 June, with legislation to be included in the Finance Bill 2012 that is likely to route the benefit of this relief to charity rather than beneficiaries of the estate. We can only speculate at this stage how the mechanism will work in practice and whether it will incentivise legacy giving.
Lifetime giving has also been the subject of a government review, albeit with changes less dramatic than those announced for giving at death.
Thanks a lot
One aspect of the UK’s giving culture the Government is seeking to improve is the way UK donors are thanked. Since April the cap on ’thank you’ benefits allowed under the Gift Aid scheme has risen from £500 to £2,500, allowing donors giving up to £50,000 to be thanked in the same way as those giving less than £10,000.
Donors will also find themselves subject to a less onerous anti-tax avoidance regime that will be brought in to replace the flawed substantial donor rules. New tainted charity donations rules are contained in the Finance Bill aimed at removing the confusion and unintended consequences of the existing regime. They take the focus off high-value donors and instead apply a purpose test that seeks to catch arrangements designed to provide benefit.
Unlike some other jurisdictions, the UK does not provide tax relief on lifetime gifts of works of art. Considering the mature market for valuation and the ’acceptance in lieu of tax’ scheme that already exists for gifts on death, it would be sensible for such a relief to be introduced.
There has been sector support for extending charitable relief to works of art and items of historical value, including the 2004 Goodison review, ’Securing the Best for our Museums: Private Giving’ and government support, and a consultation on this was announced in the March Budget.
The Government has yet to announce a consultation on the introduction of a tax-efficient way of giving to charity through lifetime legacies. This term has been used
in recent years to refer to split-interest charitable remainder trusts (CRTs), which is essentially a way of making an irrevocable lifetime gift to charity where a capital gift is deferred for a period of time, during which the income arising on it may be enjoyed by the donor or other beneficiary. There is currently a UK tax disincentive for making a gift in this fashion and the white paper does not address this.
CRTs have been a mainstay of giving in the US for years, where the structure is used frequently by donors who wish to gift an appreciated asset to charity but have some need of income for a specific period.
The Government’s philanthropy strategy and the green paper both look to the US for inspiration. The UK will struggle in the current climate to encourage the wealthy
to help build up substantial US-style endowments. If lifetime legacies are to assist, the Government should look closely at their success in the US.
The philanthropy strategy designates 2011 as the ’year of corporate philanthropy’, but the year is nearly halfway through and fostering corporate giving seems to have fallen off the radar. However, concrete proposals, such as the corporate giving kitemark mentioned in the white paper, could be taken forward to encourage businesses to support charitable causes both financially and in kind.
The white paper confirms that the Government will not be imposing a minimum annual expenditure requirement of the sort that is imposed on US private foundations, where charities are not subject to specialist regulatory supervision as UK charities are. A minimum payout would have been inappropriate for the UK’s legal and regulatory landscape and would have been a short-term fix with potential long-term consequences, so this clarification is to be welcomed.
If the year so far has been a busy one, the coming months are set to continue in that vein, with consultations on giving incentives and preparations for an autumn Giving Summit.
As funding cuts start to affect donors and charities, we can only hope that initiatives to foster UK giving are implemented quickly and effectively.
Christopher Groves is a partner and Alana Lowe-Petraske is an associate at Withers