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
    +1

    Comment number 715.

    This is typical of our government to smokescreen the real issue, which is not charity given of any amout, but for their buddies to find ways of avoiding tax, because they use accountants to minimise their liability. what the government should do is simplify the tax system so their are no loopholes. I blame the tories for being totally dumb to the facts

  • rate this
    +1

    Comment number 714.

    707 (David Holder ) I’ve no problem with the Rich giving to any “charity” that they want to, AFTER THEY HAVE PAID THE FULL TAX THAT THEY ARE SUPPOSED TO, JUST LIKE ORDINARY PEOPLE DO!#

    I am an "ordinary person", paying basic-rate income tax. I give money to charity through gift aid. The charities reclaim the tax I have paid so my gift is essentially tax free.

  • rate this
    +2

    Comment number 713.

    "CTDavies
    Anyway, how is giving all your money to charity a tax avoidance scheme?"

    the net result is that everyone else's tax bill increases as the tax that parliament has set is not collected because the rich fund their pet causes (however worthy) rather the public services society needs to function. Some are able to choose where their money goes, most cannot.

  • Comment number 712.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 711.

    To 698. Mr Max

    According to the 2010 Charity Commission report, only 76% of charities filed within the deadline.

    Where is the requirement for 10% listed? Evidence, please.

  • rate this
    +1

    Comment number 710.

    699. Darren Shepperd
    But dont worry the fools here think i get nothing ignoring the 25% reduction in my personal taxation so while i should pay 45% i only pay 20%"
    -

    That's incorrect on so many levels. You would have to donate half your salary to do that, and you would not see any of that "gain" at all as it goes to the charity.

  • rate this
    +5

    Comment number 709.

    The Tories are so good at divide and conquer. Today they have us fighting about what charities are good/bad and whether the rich/poor should be donating to charity.

    Can't we just all agree that neither the Tory nor New Labour parties should have any tax exemptions?

  • rate this
    +1

    Comment number 708.

    Taxation is for governance only. All social benefit matters should be done on a charity basis by “free will” to re-establish true “neighbourly love”, transparency, and curtail corruption. For your information Google “The World Monetary Order”.

  • rate this
    +6

    Comment number 707.

    Charity donations have benefits for society as a whole. The Chancellor would be better looking at schemes that only advantage the individual taxpayer entering the arrangement. The levels of avoidance for those schemes are truly shocking.

  • rate this
    0

    Comment number 706.

    700.Ivor Biggun
    That one might be a scam, I've heard of something like it before.

    Maybe charities should be classified in some way and then we need only to be more sepcific about what category of charity donations are eligble. Personally I'd rule out anything like sports or arts as they are unlikely to provide benefits that are 'generic' across the population.

  • rate this
    0

    Comment number 705.

    Black_And_Proud

    Make annual publication of accounts (including salaries) compulsory.
    Restrict (to 10%) the amount they can spend on admin/ marketing.

    I'm on the board of a charity which supports a school in Ethiopia. 100% of collected funds go to the school and all school staff are local people. If we wish to visit, we pay. We work hard and would love to collect more than £10000 pounds a year

  • rate this
    +2

    Comment number 704.

    689.Eatonrifle
    Excellent link Eaton! Made the point brilliantly. Worth a look everyone.....

  • rate this
    0

    Comment number 703.

    Who wouldn't be prepared to be "philanthropic" with other people's money?!
    If the rich "do-gooders" would like to hand over their cheque book, I'll show them how benevolent I can be...

  • rate this
    +1

    Comment number 702.

    694. Emmabirdgreen. I’ve no problem with the Rich giving to any “charity” that they want to, AFTER THEY HAVE PAID THE FULL TAX THAT THEY ARE SUPPOSED TO, JUST LIKE ORDINARY PEOPLE DO!

  • rate this
    +4

    Comment number 701.

    The attack on charity donations is a red herring. Just because something leads to a tax rebate does not automatically make it tax-avoidance. True tax avoidance leaves the individual taxpayer better off. Charity giving does not.

  • rate this
    +4

    Comment number 700.

    Registered charities are very worrying.
    I have a registered charity clothes bag pushed through my letter box daily.
    They are collected (at speed) by plain white vans EVERY time.
    Why do i feel this is the biggest racket in the UK?

  • rate this
    0

    Comment number 699.

    694.Emmabirdgreen
    yes i think i will talk to Eton give them a nice fat donation provided they take my son on a scholarship that way Eton can claim to be helping the needy and i get a massive right off of profits on my shares. But dont worry the fools here think i get nothing ignoring the 25% reduction in my personal taxation so while i should pay 45% i only pay 20%
    its called being selfish

  • rate this
    -1

    Comment number 698.

    697. Black_And_Proud
    Many charities are just organised frauds.
    Make annual publication of accounts (including salaries) compulsory.
    Restrict (to 10%) the amount they can spend on admin/ marketing."
    -

    Most charities are *not* organised frauds, & I won't hold my breath for a source.
    The other two points are already the case. You've not bothered to look. Clearly, jumping on a bandwagon was easier.

  • rate this
    +1

    Comment number 697.

    Many charities are just organised frauds.

    Make annual publication of accounts (including salaries) compulsory.

    Restrict (to 10%) the amount they can spend on admin/ marketing.

  • rate this
    +1

    Comment number 696.

    688.general
    No its in a mess because of their stupidity/incompetence which in my book is worse, but Ive no objection to people earning a lot if they are good at what they do and what they do is needed.

    But we are also in a mess because many of the pop. were happy to take their back hander from the situation in the form of cheap credit and unsustainable debt. Some want to do it again.

 

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