The Charity Tax Row Explained

UK Chancellor of the Exchequer George Osborne is facing a lot of criticism over his plans to cap tax-free donations to charities, announced in last month’s Budget. It’s also taken on new potency in the light of Osborne’s cuts to the 50% top rate of income tax, alongside new taxes on pasties.

Today, for the first time, the government has admitted this cap will have “an impact” on charities.

But what’s actually involved in these cuts, and what will it mean for the future of charitable donations in Britain?

As of April 2013, a new limit will be introduced on the amount of tax relief which can be claimed by donating to charity. The amount is £50,000, or 25% of annual income, whichever is greater.

This plan was introduced after the government argued that many wealthy people pay less income tax than the poorest, by taking advantage of the tax relief system currently in place – which allows an individual’s tax bill to be brought down to zero simply by donating to charity.

In the Budget, the Chancellor said: “It can’t be right that some people make unlimited use of these reliefs year after year. Everyone in this country and particularly those with the highest incomes should contribute a fair share to the Exchequer.” The Chancellor is joined by David Cameron and Foreign Secretary William Hague in promising to be “very sympathetic” to charities’ concerns.

The Treasury knew this would lead to idealistic conflict and are planning to “explore with philanthropists ways to ensure that this measure will not impact significantly on charities that depend on large donations.”

David Cameron has said that the policy could be watered down to protect charities.

A group of 900 charities have joined together to oppose this plan, which they say will “put people off” donating large sums of money.
These cuts are also facing criticism from within, with a ComRes poll showing two thirds of Conservative and Lib Dem MPs opposed to the plans. Of the 71 surveyed, 46 agreed that charitable donations shouldn’t be subjected to caps, while 15 supported the policy and 10 didn’t express a view.

Exchequer Secretary David Gauke told BBC’s Today programme that while there will be “an impact” on large donations, the Government is focussing on limiting income tax avoidance from the very wealthy.

“The broader point is at the moment people are able to give to charities and indeed make use of other reliefs within the tax system that gets their rate down. We don’t think it is entirely fair that there are some very wealthy individuals who are essentially able to take themselves out of the income tax system.”

The Treasury today released figures which show that one in ten people earning more than £10 billion per year is paying less than the basic 20% rate of income tax.

Tory MP Zac Goldsmith is “ashamed” that his party has “declared war” on charities.

John Low, chief executive of the Charities Aid Foundation, said that the Government must now listen to the opposition this plan is facing from backbenchers, ministers, charities and donors and “reverse this ill though through tax change.” He said also that a blanket cap was not the way to limit the tax relief open to the wealthiest individuals.

“It is not the rich who suffer from this tax cap, it will be disadvantaged people and the causes we all care about.”

From the outset this plan would seem like a viable solution to Britain’s domestic economic worries, particularly in light of the government’s attempts to balance out income distribution.

Nick Robinson, the BBC’s political editor, suggests that ministers want to remain strong on the theory, but are flexible on the practice.

He points to the Treasury’s figures which show an estimated revenue of £300m from this plan – but of that, £50 – £100m will come from charities.

Nick also suggests that there be a separate higher cap for donations to charity, mirroring the US model of 50% annual income for some charities, 30% for others.

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