Budget boost for charity giving reform
April 2011
The government has included a number of measures to increase charitable giving
in George Osborne’s latest Budget.[i] Hailed as the “most radical reforms to charitable giving for 20 years”, the chancellor's hanges are estimated to benefit up to 100,000 charities to the extent of £240m, and build on the ten-point action plan announced last year by DCMS secretary Jeremy Hunt.[ii] The ‘charitable giving’ section of the budget (at least there was one!) unveiled the following changes set out below.
Inheritance tax (IHT)
The rate of IHT will be reduced to 36% on estates where at least 10% of that estate has been left to charity. This is designed to ‘reduce the cost of giving to charity through bequests. The relief is structured so that the benefit of the tax saving is reflected in the bequests received by the charities and not in payments to other beneficiaries. However, as Directory of Social Change’s Jay Kennedy points out: “This is likely to mainly benefit larger well-known charities, as they are far more likely than smaller charities and community groups to receive legacy donations.”
Gifts of art works
The government is going to consult on proposals to ‘encourage donations of pre-eminent works of art or historical objects to the nation in return for a tax reduction. Simon Weil of law firm Birch Dyson Bell observes: “The devil will be in the detail but it would be interesting to learn whether the proposed measures will involve a material modification of the reservation of benefit rule, i.e., will they contemplate allowing the taxpayer to have lifetime use and enjoyment of a work of art or not? I await the results of this consultation, which is scheduled to take place over the summer, with a degree of optimism."
Gift Aid
Thresholds
This is being increased from £500 to £2,500 from April 2011 ‘to enable charities to give ‘thank you’ gifts, to recognise the generosity of significant donors’. John Low of the Charities Aid Foundation commented: “The commitment to bring Gift Aid into the 21st century will revolutionise this important tax relief and go a long way towards reducing the £750m that goes unclaimed each year. We are also pleased to see they have implemented our recommendation to remove restrictions around thanking donors.”
However, Simon Weil of law firm Bircham Dyson Bell has some words of caution: “The £500 Gift Aid benefit limit has caused large headaches for organisations within the arts and heritage sphere, as one of the main ways in which they are able to attract and maintain donors is by inviting them to events. It has meant that such organisations could easily jeopardise the Gift Aid status of donations if the value of the benefit given to a donor exceeds this limit. As a consequence, they have had to agonise about what they can and cannot do. “
He continues: "The government's move to allow donors up to £2,500 in benefits is to be welcomed on the face of it. However, they are also seeking to draw up an exhaustive list of defined benefits. Such a list would be likely to ascribe values to benefits, thereby rendering it all too easy for a donor to run up a value in benefits that approaches the new upper limit. This is a potentially sinister move, which could entail the government giving with one hand and taking away with another.”
Gavin McEwan of Turcan Connell isn’t convinced the numbers really add up though and maintains the government’s largesse needs to be “balanced against the loss of Gift Aid Supplement which comes to an end on 5th April 2011 and which will reduce the benefit of Gift Aid from over 28p for every pound donated to 25p in the pound.” For many charities, he adds, “the effect of that change will outweigh the benefits of the chancellor’s budget statement: and that means some charities will have to work hard to make the ‘radical reforms’ work to their benefit.”
Online filing
The government confirmed that it will introduce an online system for charities to claim Gift Aid and as a first step will shortly be publishing ‘intelligent’ forms (which contain automatic checks) for charities to use to apply for and claim tax reliefs. The online Gift Aid system should be in place by 2013, according to the Budget statement.
Self assessment (SA) donate
To help fund the introduction of Gift Aid online filing, the government will withdraw SA donate for tax returns for 2011-12 onwards.
Payroll Giving
There was also a commitment to ‘explore’ what more could be done to boost Payroll Giving. However, as Louise Richards, head of policy at the Institute of Fundraising observed, the eventual removal of some 880,000 people out of paying income tax altogether with personal allowances set to rise to £10,000 does have implications for charities in terms of Gift Aid and Payroll Giving, despite this being a welcome move for the lower paid.
Despite some of these caveats, this was a positive budget for the charity sector, something that Debra Allcock Tyler credited charities minister Nick Hurd with having pushed forward: “I say bloody well done to George Osborne, David Cameron and especially to Nick Hurd. We weren’t expecting the giving rhetoric to translate into the budget and it has. Taken together the proposals to support charitiable giving could be more significant than any put forward in any other recent budget.”
A very good place to start
However all the umbrella bodies were agreed that this was only “the starting point.” The UK Giving 2010 Report [iii] over the six years for which the survey has been carried out: “the proportion of people giving has remained fairly stable, varying between 54 per cent and 58 per cent. Charitable giving appears to be a well-established behaviour with relatively little variation.” It remains to be seen whether this budget will change this trend. published in December 2010 highlighted that while taking the recession into account the overall levels of individual giving have remained relatively stable
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from
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