Government to consult on plan to cap charity tax relief

 

David Cameron: "We always said that we would consult on how this is implemented"

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The government will launch a formal consultation in the summer over plans to limit the tax relief on charitable donations, Downing Street has said.

A spokesman said there were "various options on table" and ministers wanted to "get the balance right".

The planned cap has been criticised by Labour and philanthropists, as well as some senior government figures.

Number 10 said David Cameron wanted to see more charitable giving and did not want to impact on donations.

Ministers say they want to end the practice of wealthy people minimising their tax bill - sometimes to zero - by donating to charity.

Although the donor does not personally profit in this way, it means they are choosing where their money is spent - unlike normal taxpayers - and the Treasury says it is losing out on £50-100 million a year.

Under the plans, previously uncapped tax reliefs - including on charitable donations - would be capped at £50,000, or 25% of a person's income, if that was higher, from 2013.

'Opt out'

Downing Street said a consultation would begin after talks with individual charities, adding: "We want to explore ways we can introduce a cap."

How changes will work

From April 2013 there will be a limit on the amount of income tax relief individuals can claim.

At the moment there is no limit, so it is possible to donate enough money to charity to effectively bring a tax bill down to zero.

Although the donor does not personally profit from the arrangement, it means they are choosing where their money is spent - unlike normal taxpayers.

The cap will be set at £50,000 in any one year, or at 25% of an individual's income - whichever is greater.

That means an individual with an income of £4m could still give £1m to charity and get full tax relief for that £1m.

However, if they want to donate more, they will have to donate from their taxed income.

Earlier, Exchequer Secretary to the Treasury David Gauke defended the planned cap, telling BBC Radio 4's Today programme: "Our concern is that it's not fair that the vast majority of people... make a contribution towards the NHS and armed forces and so on, but there are some wealthy individuals whom the tax system essentially allows to opt out."

The government has talked about the need to prevent people giving to "dodgy charities" in order to minimise their tax.

Conservative MP Douglas Carswell has said he is prepared to vote against the government's proposals.

He told BBC Look East: "A government should be giving tax breaks to help philanthropy. I thought that is what the Big Society is supposed to be about. I think we should drop this plan it is wrong."

He added: "I am a member of the legislature and my job is to hold the government to account and I am willing to stand by my principles in the voting lobby."

BBC political editor Nick Robinson says he expects the government to stick to plans for a tax relief limit of some kind.

But he says there is clearly some room for manoeuvre around the specifics of the measure, for example, people could be allowed to roll over their tax relief allowance from one year to the next, or make a lifetime gift that would be exempt from tax.

'Branded tax-dodgers'

Among those criticising the plan is Conservative Party treasurer Lord Fink who says it will put people off giving large sums to good causes.

Former PM Tony Blair, speaking ahead of philanthropy forum: "Sometimes it's best just to do the U-turn"

In a speech in Washington, former Labour Prime Minister Tony Blair warned that "this is absolutely the right moment for government to do all it can to promote philanthropy; and certainly nothing to harm it".

Mr Blair later told Newsnight on BBC Two that the government should use its consultation period to "think again".

"Most people give to charity because they want to give to a good cause not to avoid tax so I think the best thing, frankly, is to separate those two things out. If there's tax avoidance issues you can deal with them in a different way," he said.

"Anybody who's giving money to a charity - if they're giving it to a genuine charitable cause - they're losing money."

Mr Blair said the philanthropic sector could be "more creative, more innovative, than traditional ways of government" and could be a "great inspiration and complement to it".

Labour said it would seek to force a vote on what it calls the "charity tax" in the Commons on Wednesday, after leader Ed Miliband called it "a hasty and ill-thought through measure" from a government "desperate to cover up the 50p tax cut".

Meanwhile, the Treasury has published figures showing that 6% of the £10m-plus earners - 12 people - paid less than 10% in income tax in 2010-11, while another 3% paid less than 20%.

Overall, more than 73% of those earning more than £250,000 paid tax at a rate above 40%, including 81% of those earning £5-10 million and 72% of those earning £10 million-plus.

The BBC's business editor Robert Peston says this shows the tax avoidance which HM Revenue and Customs says greatly reduced the yield of the 50p tax rate was carried out by a tiny minority of top earners.

What tax rate are top earners paying?

£100k to £150k £150k to £250k £250k to £500k £500k to £1m £1m to £5m £5m to £10m Over £10m

Above 40% tax

-

6%

73%

81%

80%

81%

72%

30% to 40% tax

67%

77%

18%

11%

10%

8%

12%

20% to 30% tax

24%

13%

5%

4%

5%

4%

8%

10% to 20% tax

8%

3%

2%

2%

2%

3%

3%

Under 10% tax

1%

2%

2%

2%

3%

4%

6%

Source: HMRC, 2010-11

 

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  • rate this
    -7

    Comment number 595.

    It is sad to read the warped logic of some of the bitter and twisted Left whingers. They are so desperately unable to think about working for a living and being a bit smart they have to attack the hard working smarter people who donate to charity. How selfish and money grabbing is that?

  • rate this
    +6

    Comment number 594.

    I'd like those 46 rich donors from yesterday's Telegraph to publish where their tax donations - oops sorry their philanthropic donations went. Did it go to Cancer Research or Shelter or any of the foodbanks that are (disgracefully in 21st century Britain) being set up? Or did they go to the National Opera, Private Schools or Hilton Bridge Club? There must be a public record in their tax returns.

  • rate this
    +3

    Comment number 593.

    How much is being donated to buy works of art, only for it to be used to line the pockets of a wealthy aristocrat who is holding the nation to ransom with the threat of the artwork being be sold overseas?

  • rate this
    +7

    Comment number 592.

    I am not even a 40% tax payer but I still give money to charity and gift-aid it. The charities can then claim extra money.

    If tax relief on charitable donations is removed the charities quite simply will not get the extra money.

  • rate this
    -2

    Comment number 591.

    As usual, this HYS thread is filled with left wing rants based purely on the politics of envy. The rich get bashed just for being rich. They can't even make a donation to charity without hordes of internet revolutionaries foaming at the mouth!

    Good grief!

  • rate this
    +3

    Comment number 590.

    Didn't George sit on the advisory council of Fox's Atlantic Bridge 'charity' along with Gove, Chris Grayling and Lord Ashcroft's bagman, Willy Hague.
    I know it was disbanded on account of being 'well dodgy' but you'd have thought George would have a good working knowledge of the scam from an insider's perspective and be able to identify the rogue "charities"?

  • rate this
    +1

    Comment number 589.

    could you tell me if I can get tax releif for party political donations to? Many of those are charities?

  • rate this
    +4

    Comment number 588.

    Unfirtunately some people would rather dontate to charity than pay tax. This denies the tax system of much needed funding and increases the burden on "normal" taxpayers. No one should have an opt out of how or if they pay tax, so I actually support this move by the government. They just haven't explained it very well.

  • rate this
    +3

    Comment number 587.

    The philanthropists must feel really good about giving their money to charity and also ensuring their money doesn't go to the tax man. It must give them a very warm feeling that they are choosing how their tax is being spent.

  • rate this
    +1

    Comment number 586.

    @TheWalrus999

    The cap was to test the water for his other two proposals which he has since announced, which i listed.

    Im all for closing tax loopholes, as well as removing benefits from the underserving. All for fair tax, and using the money to fund essential services.

    What im not for is taxing charities, using tax money to host private partys, and limiting how much people can donate.

  • rate this
    -1

    Comment number 585.

    I don't get any money from any charity.
    I do get money from the government.
    That should tell me something.

  • rate this
    +3

    Comment number 584.

    561.tonesalone
    6 Minutes ago

    When a person who runs their own business, makes money - and moves into a 'middle class area', then he or she is middle class! Sounds like you're a bit disappointed that 'blue collar' workers in Britain can be as financially successful as you. A good spark can charge an hourly rate similar to a solicitor. I think it's called 'social mobility' Feel Osbourned?

  • rate this
    +3

    Comment number 583.

    I am not a supporter of the government, but, with regard to charity donations, they are on the right track. There should be no gain for higher rate taxpayers compared to basic rate taxpayers. The rules on what constitutes a charity should be tightened to exclude "charity begins at home"! The correct spirit is philanthropic. The threat to stop giving gives the lie to the claim of philanthropy.

  • rate this
    +2

    Comment number 582.

    19. Couerde hamster. I agree "donations" should be just that and tax relief should not be brought into it. While we are at it, we should also look to withdraw charitable status from organisations who use most of the money they rake in on paying salaries rather than on what the donors intended the donations for.

  • rate this
    +15

    Comment number 581.

    If the High earners that these proposals affect are truely philanthropists then they surely won't simply stop giving.

    Personally I don't understand what is generous about donating money that these 'philanthropists' would not otherwise have.

    If they are truely philanthropists then they would donate money from their own earnings AFTER tax.

  • rate this
    +8

    Comment number 580.

    I think a question that I always have in the back of my mind is how much do you have to earn before you are counted as "Rich" because I bet there are an awful lot of people who agree that the "Rich" should pay more in tax but do not count themselves in that bracket.

  • rate this
    +2

    Comment number 579.

    >>560.Leyasu
    "Two proposals that Osbourne has wanted as part of his ammendments:

    Taxation of all donations by anyone: Charity pays this tax.
    Cap on individual donations: You can only donate a maximum of X"

    This is rubbish.
    The cap is on tax relief on donations over £50K.
    Not on the amount donated.
    The rich can still donate millions, but won't get as much tax relief.

  • rate this
    0

    Comment number 578.

    565.
    Some Lingering Fog

    I have no problem with that as long as everyone has the opportunity to say where their tax money is spent and not just the wealthy few.

    --

    Everybody does, as long as you can afford to make the donation. Its just more telling that when the Charity Aid Foundation asked why they dont introduce the same cap to party donations, that Osbourne's reply was ''it's not feasable''

  • rate this
    -3

    Comment number 577.

    What we need to know is how many top earners are avoiding paying their full tax by giving to charity. I fail to see how giving to charity can really be classed as tax avoidance when the giver gets no financial benefit from making the donation-the saved tax(which is legal) goes to the charity and is not kept by the taxpayer.

    We need charities Macmillian Nurses etc.

  • Comment number 576.

    This comment was removed because the moderators found it broke the house rules. Explain.

 

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