Giving in a material world

Tax incentives for charity donations are essential and the chancellor should encourage them

Which Chancellor of the Exchequer said he would encourage wealthy people to give more to charity? Which said: “Do the right thing for a charity and the Government will do the right thing by you.”

George Osborne, in his 2011 Budget statement – the same chancellor who, in his 2012 Budget, announced restrictions on the application of Gift Aid for charity giving and, probably worse, created confusion regarding the tax relief available to big earners who are philanthropically inclined.

Incentives for giving to charity were a welcome theme of the 2011 speech, when he announced that a lower rate of inheritance tax would apply where people leave a charitable legacy of 10 per cent or more of their estate when they die. The consultation paper on that incentive said the Government was committed to encouraging charitable giving as part of the ’Big Society’.

The Government also said it wanted to encourage giving by donors from all stages of life, from the largest to those who give through charity bucket donations.

One of the most effective incentives for charity giving is Gift Aid, whereby charities can reclaim basic rate tax (20 per cent ) from HM Revenue & Customs on a donation’s gross equivalent. The effect is that £100 donated under the Gift Aid scheme is worth £125 to the charity. For higher rate taxpayers Gift Aid has the quality of mercy – it is twice blessed, in blessing those who give and those who receive. So the higher rate taxpayer can claim tax relief on the gross amount of the donation. The only limit is the amount of income that is subject to higher rate tax.

In this year’s Budget Osborne announced restrictions on income tax reliefs. He acknowledged it was right to have tax reliefs that promote investment, support charitable giving and reflect genuine business loss. But he emphasised that, from April 2013, anyone seeking to claim more than £50,000 of reliefs in one year will have a cap of 25 per cent of income.

The Budgets of 2011 and 2012 are contradictory. Why should there be a cap on the tax relief of wealthy individuals who wish to make charitable donations? The Government has said it will explore ways to ensure this limit of relief will not significantly affect charities that depend on large donations. The simple way to avoid this would be to leave uncapped the relief that applies to gifts to charity.

These large donations by a relatively small number of individuals regularly make the difference between success and failure for fund-raising campaigns. Tax avoidance is regarded by the chancellor as morally repugnant, but our message to him is simple – incentives for giving to charity are a moral imperative.