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Good news for charities and wealthy philanthropists: there will be no limit to the amount of tax relief which a philanthropist can receive as a result of donating to charity.
In the March Budget Mr Osborn announced that there would, from April 2013, be a limit on income tax relief claims of £50,000 (or, for some high earners, 25% of the taxpayer’s income, whichever was the greater). The reliefs to be capped would include the relief on gifts to charity, as well as reliefs for genuine losses. Other income tax reliefs will still have a cap from April 2013, but this will no longer include Gift Aid relief.
At present, if a 40% taxpayer donates e.g. £8,000 by Gift Aid to charity, then the charity receives an extra £2,000 from HMRC and the taxpayer also receives £2,000 from HMRC (usually by his tax bill being reduced by that amount). The overall cost to the taxpayer is £6,000 (£8,000- £2,000), but the charity receives £10,000. The tax relief can be even higher, especially where the taxpayer is taxed at a high marginal rate. In this example provided the taxpayer wasn’t claiming any other type of income tax relief, the tax relief would still have been given under the proposed changes as originally proposed. However, charities often benefit from substantial donations from philanthropists and the relief to those philanthropists would have been affected.
Under these long standing Gift Aid rules, the larger the cheque, the larger the tax refund received by both the taxpayer and the charity. Many philanthropists naturally take into account that writing a cheque to charity actually costs them far less after income tax relief. At their level of income they will have an accountant or solicitor who will advise them on what figure on the cheque will achieve the net sum that they actually intend to give away. The amount the philanthropist feels he can afford to give away is unlikely to change, so if the tax refund after the proposed capping would have been less, he would have needed to write a smaller cheque. The smaller cheque would have also correspondingly reduced the amount of tax relief contribution that the charity received from HMRC, so the charity would have lost out twice.
It was immediately clear to charities that their income would be badly affected. An Oxford Economics report estimated that the change in philanthropists’ behaviour could cut charity resources by £1.5 billion a year. Not only would this hit the recipients of charity, but it would also presumably lead to job losses within the sector.
Happily for charities and philanthropists the Treasury has listened to the protests and has now announced that the new tax relief capping will exclude relief on gifts to charities. Back to where we were for philanthropists and charities. Now, where’s that chequebook….
For further information, please contact Hauke Harrack on firstname.lastname@example.org or on 01604 463131 .