MSE News: Charities fear tax relief backlash

Former_MSE_Helen

This is the discussion thread for the following MSE News Story:

"Charity bosses fear big donations from wealthy backers will be hit by a cap on tax relief for charitable donations"

Read the full story:
Charities fear tax relief backlash

N1AK

This seems like one of the more blatantly hypocritical things the current government has done. It's trying to tie charitable donations to other tax practices used to avoid income tax; and doing so while claiming to believe it its big society vision.

I doubt many people believe that giving to charity is tax avoidance or should be limited. Surely most people care about tax avoidance measures that are used to keep more money than intended?

Personally I don't donate a lot to charity and I'm not saying that it should be tax free to do so. However making this change while encouraging charity as the current government has been makes them look two faced.

thelawnet

It seems fair enough tbh.

The government needs money, so do charities. Basically the rich can say 'I'm not paying taxes to fund public services in the UK, I want to donate to support an art gallery instead'. Most people don;t have that option.

The issue is pretty simple - let's say you earn £10 million per year and you've got £100 million in the bank.

You don't need the £10 million, so you donate it to Oxford University to build a 'Wealthy Plutocrat Library', named in your honour.

Er, what? Exactly how is this better than paying tax to fund hospitals, supprot for the disabled, etc? How about you pay your taxes like the rest of us????

antonia1

thelawnet wrote: »

It seems fair enough tbh.

The government needs money, so do charities. Basically the rich can say 'I'm not paying taxes to fund public services in the UK, I want to donate to support an art gallery instead'. Most people don;t have that option.

Everyone has the option. When a lower rate tax payer Gift Aids their donation, the income tax paid on that is reclaimed by the charity.

Lower rate payer:
Income £100
Tax £20
Donation £80
Charity reclaims £20 tax
Net income to charity £100
Net cost to individual £80
Total for HMRC £0

thelawnet wrote: »

The issue is pretty simple - let's say you earn £10 million per year and you've got £100 million in the bank.

You don't need the £10 million, so you donate it to Oxford University to build a 'Wealthy Plutocrat Library', named in your honour.

Er, what? Exactly how is this better than paying tax to fund hospitals, supprot for the disabled, etc? How about you pay your taxes like the rest of us????

27% (ish) of income tax revenue comes from just 1% of the population. So actually they are already helping to fund hospitals, disabled people, schools etc.

All that will happen is that charities will have less money and the Government will have more.

Previous system (higher rate payer)
Income £100
Tax bill £40
Donation £100
Tax bill discount £40
Net income to charity £100
Net cost to individual £60
Total for HMRC £0

New system (higher rate payer)
Income £100
Tax £40
Donation £60
Net income to charity £60
Net cost to individual £60
Total for HMRC £40

busybee100

With all this Oo-Ha Charities are admitting philanthropists give BECAUSE of tax relief.

They can continue to give they just need to pay their taxes as well.

HalloweenJack

lol - the treasury have allready admited they have no clue what 50% of registered charities actually do - and its rumoured to want the charities commission to investigate theose which are said to nothing more than a front for tax avoiders.....

thelawnet

antonia1 wrote: »

Everyone has the option. When a lower rate tax payer Gift Aids their donation, the income tax paid on that is reclaimed by the charity.

Your numbers are a bit confusing.

If you write a cheque to Scope, or whatever, for £100, as a basic rate tax payer, then that costs you £100, Scope receive £125.

If you write a cheque for £100 to Scope as a 50% tax payer, then you can claim £37.50 back from the government, Scope receive £125, but the cost to you is just £62.50.

If you are helping cure malaria in the Third World, or whatever, that's one thing, but what if it's going to your favourite opera house?

Are we really sure that the Institute for Higher Rabbinical Studies, or the Alpine Garden Society (to take examples of two registered charities) should be able to reduce ones tax liability to nil?

The point with a basic rate tax payer is that generally they don't have the option to donate all their money to charity, because they need it for day-to-day life. Whereas someone earning £10 million/year can afford to give it all away.

jrawle

busybee100 wrote: »

With all this Oo-Ha Charities are admitting philanthropists give BECAUSE of tax relief.

They can continue to give they just need to pay their taxes as well.

They will continue to give the same amount before, but the charity will receive far less as a result. So in effect the change means the government is taking money from charities.

When the basic rate of tax was reduced to 20%, the government had to introduce an extra component to gift aid for an interim peroid to soften the blow to charities. I fail to see why this is any different.

jrawle

thelawnet wrote: »

If you are helping cure malaria in the Third World, or whatever, that's one thing, but what if it's going to your favourite opera house?

Are we really sure that the Institute for Higher Rabbinical Studies, or the Alpine Garden Society (to take examples of two registered charities) should be able to reduce ones tax liability to nil?

Who makes the judgement about what constitutes a worthy charity? You? If wealthy patrons no longer fund an opera house, do you think it should just be closed down? Or should it be funded out of taxation?

And it hardly reduces tax liability to nil. They don't get to keep the money they are giving to charity as it's gone to the charity. If they are using investment income to live off instead, this is taxed, whether income from dividends or realisation of capital that is subject to Capital Gains Tax. Plus any money used to buy the investments in the first place was presumably taxed income too.

thelawnet

jrawle wrote: »

Who makes the judgement about what constitutes a worthy charity? You? If wealthy patrons no longer fund an opera house, do you think it should just be closed down? Or should it be funded out of taxation?

Well no-one needs to decide that, that's the point, this legislation doesn't make that judgement.

The point is however is that we have no reason to assume that giving to charity is, in aggregate, better than giving the money to the government.

And it hardly reduces tax liability to nil.

Yes it does.

They don't get to keep the money they are giving to charity as it's gone to the charity.

That's not actually true.

If you are paid a salary of £10 million (footballers, for example, might earn this much, and get paid by PAYE), then disregarding the fairly negligible 20%/40% band, then you receive £5 million in salary, you give it to the charity, the charity reclaims £1.25 million and you get £1.875 million back from HMRC.

Which is not exactly nothing, is it?

If they are using investment income to live off instead, this is taxed, whether income from dividends or realisation of capital that is subject to Capital Gains Tax. Plus any money used to buy the investments in the first place was presumably taxed income too.

Not necessarily.

jrawle

thelawnet wrote: »

If you are paid a salary of £10 million (footballers, for example, might earn this much, and get paid by PAYE), then disregarding the fairly negligible 20%/40% band, then you receive £5 million in salary, you give it to the charity, the charity reclaims £1.25 million and you get £1.875 million back from HMRC.

But then you are getting £1.875 million in your account out of £10 million salary, meaning deductions of 81%. While it means no money goes to the exchequer, it's hardly a good tax avoidance scheme for anyone seeking to receive as much of their salary in their pocket as possible.

This isn't really the "loophole" most people would have liked to see closed. It penalises people who give to good causes rather than those who spend their money on a mansion, cars and a yacht.