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To cap it all

Mark Astarita, director of fundraising, British Red Cross
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To cap it all2

Fundraising | Mark Astarita | 18 Apr 2012

Allowing donors to gift their tax relief to charity instead of claiming it themselves would end the row over the tax relief cap, says Mark Astarita.

If true, the government’s stated concerns that high-value donors could be hiding their millions in dubious foundations or trusts, either in the UK or overseas, for less than charitable purposes, would see the charity sector united in with the PM in condemnation.

If the evidence the Treasury has punted so far is anything more than anecdotal, the coalition should be calling for greater scrutiny of charitable organisations they believe to be less than philanthropic here in the UK and in the EU.  A robust response to crack down on abuse would be applauded by one and all.

However, it seems to many of us to be a classic case of using a sledgehammer to crack a very tiny rotten nut.  In the meantime generous people are tarred with this unkind brush as if the many only gave for tax breaks they could receive.  Nothing in my opinion could be further than the truth.

A 2009 HMRC report exploring options for reforming higher-rate tax relief found that the majority of all higher-rate taxpayers who make large-scale donations do not plough the cash into their own foundations.
Most give directly to active and established charities, like the British Red Cross, where it plays a tangible and undisputed role in helping them deliver vital services.

The British Red Cross has signed up to the Give it back George campaign against the Chancellor’s proposals, along with hundreds of other charities in the UK.

In a recent letter to George Osborne and a number of his Cabinet colleagues, we explained that even though the proposed changes would not come into effect for another year, we are already starting to see a change in behaviour from some of our major donors. 

Uncertainty could lead to withholding of their donations until there is clarity in this matter and with the twists and turns of this debate as it has raged over the last week, clarity appears to be in short supply. I suspect damage has been done whatever the outcome and we are all the poorer for that.

We do not believe there is a need for a cap and are urging Mr Osborne to consider other options. One such solution might be for all tax relief to follow the donation to the charity concerned as it does for the vast majority of standard taxpayers who get no extra for giving.

At the moment, higher-rate taxpayers are able to claim some tax relief on donations for themselves. We propose a simple, tick-box scheme that would allow donors the choice to donate that tax relief amount to the charity – we predict this would be attractive to donors and charities alike.

Providing this option – to claim the tax relief, or to donate it – would be simple to administer and would result in a huge boost to charities. For example, an additional £312,500 could be added to a £1m donation. With gift aid on top, that donation would be worth over £1.8m to the charity or foundation, in turn doing greater public good. A simple tick-box option on tax relief – to opt in, or opt out – could have a huge impact to charities large and small.

Perhaps this could be the solution that will protect charities and put to bed the notion that high-value giving and tax avoidance are inextricably linked. This is not, and never has been, the case.  Generous people are just plain generous and I have yet to come across one donor after 20 years of fundraising that is motivated by a tax break over a wonderful cause.

Mark Astarita is director of fundraising at the British Red Cross

Click here to read the British Red Cross' position paper on this proposal, and click here to read Tania Mason's news story.

Tony Austin
Tax Consultant
Tony Austin Tax Consultants
20 Apr 2012

This is what I have been advising charities to ask of their donors and advising donors to do for years - compare the net cost of the donation to the amount received by a charity. However, it will not get rid of the perception of the Treasury and HMRC that people are not paying any tax because they donate to charity. Using your example above, a person making a donation of £1m needs taxable income before relief of £1.8m+, paying tax at 45% leaving him or her with £1m. Assuming they have other funds to draw on, they could still make a donation of £1.4m leaving them with £0.4m less than their net income for the year. The charity reclaims £0.4m to make £1,8m and the taxpayer reclaims 0.4m leaving them having given away the whole of their gross income. Also with your suggestion, what happens with gifts of quoted shares or property? This gives a deduction from income equal to the market value of the gift, so gross income £1,8m, tax of 0.8m, value of property £1.8m, tax refund £0.8m. Taxpayer now has cash of £1.8m in place of a property worth £1.8m and has effectively given away all of his or her income. If they gave the tax relief as well, they would be additionally worse off by that amount.

Lucy Brown
Head of Fundraising & Communications
Women's Aid
18 Apr 2012

This sounds like an excellent compromise which certainly meets the Government's goals of the original aims as expressed in the media. Hats off to the Red Cross for putting this forward.

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Mark Astarita

Mark Astarita is director of fundraising at the British Red Cross, trustee of the VSO and chair of the Policy Advisory Board at the Institute of Fundraising.

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