MSE News: Charities fear tax relief backlash

thelawnet

jrawle wrote: »

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.

But you never could have received £10 million. Only £5 million. So the deduction is actually 62.5%.

Which is certainly something, but if you are donating it to your church, your children's school, your favourite opera house, then you are getting a benefit from it.

Basically you give up £3.125 million and the charity gains £6.25 million. So it's effectively a half-price gift.

Could that provide a benefit to you in excess of the value of your donation? Most certainly.

It's certainly possible to get a benefit

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.

You can still give. No law against it.

dori2o

thelawnet wrote: »

You can still give. No law against it.

Exactly.

People seem to be looking at this as though the charities themselves are going to be the ones facing the £50k relief charges, but they are not.

IMO you should give to a charity because you belive in the cause. It shouldn't be given as a way of reducing ones tax burden, or as a way of ensuring a place at a school/college/university for ones offspring.

This is only going to affect those who wish to give more than £166,667.00 in contributions.

katsu

dori2o wrote: »

This is only going to affect those who wish to give more than £166,667.00 in contributions.

I am afraid it will affect the people who benefit from the work of the charities, when the charities have a reduced income their services may need to be reduced.

Arg

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.

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????

Ironically there's plenty of fake charities that get handouts from the government.

dori2o

katsu wrote: »

I am afraid it will affect the people who benefit from the work of the charities, when the charities have a reduced income their services may need to be reduced.

How many donors give more than £166,667 per year to real charities? I'm not talking about the Etons, Oxford/Cambridge Universities of this world, but real charities Scope/BHF/Cancer research etc etc etc.

PLus, there is nothing to stop people making more donations, they just won't receive more than £50k OR 25% of their annual income (whichever is greater) in tax relief.

dtaylor84

thelawnet wrote: »

But you never could have received £10 million. Only £5 million. So the deduction is actually 62.5%.
[...]
Basically you give up £3.125 million and the charity gains £6.25 million. So it's effectively a half-price gift.
[...]
You can still give. No law against it.

Well, in the (admittedly unlikely) scenario above, the charity would receive £6.25m from someone with an income of £10m - that is now legally impossible.

beansy

thelawnet wrote: »

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.

Sorry to sound a bit thick but can't work this out!!

Have I got this right?

As a basic rate tax payer when I make a donation to a charity of £100 the charity receive the Gift Aid direct = total donation received by the charity = £125.

So in the case of a 50% tax rate payer making a £100 donation to a charity, how does the charity receive £125 and the 50% tax rate payer still claims back £37.50?
As the charity has already received £25 in Gift Aid wouldn't the remaining tax eligible to be claimed be £25?

redbicycle

I take offence that you say Oxford and Cambridge universities are not real charities. If someone becomes very wealthy, and gives to their old Cambridge college, then that could - improve university facilities, create employment for academics and support teaching and research, or allow more generous bursaries to students to offset the recent massive increase in fees.

All of the above do things that are a public good.

dtaylor84

beansy wrote: »

As a basic rate tax payer when I make a donation to a charity of £100 the charity receive the Gift Aid direct = total donation received by the charity = £125.

HMRC treat this as you donating £125 of gross pay to the charity.

20% of £125 is £25 - deducted as basic rate income tax, and reclaimed by the charity.
80% of £125 is £100 - the net pay, donated to the charity.

beansy wrote: »

So in the case of a 50% tax rate payer making a £100 donation to a charity, how does the charity receive £125 and the 50% tax rate payer still claims back £37.50?

Rather confusingly, HMRC still treat this as you donating £125 of gross pay to the charity.

20% of £125 is £25 - deducted as basic rate income tax, and reclaimed by the charity.
30% of £125 is £37.50 - the remainder of the tax deducted, paid by the taxpayer to the charity a second time, then reclaimed later
50% of £125 is £62.50 - the net pay paid to the charity

So, once again, £100 is paid directly to the charity and £25 is reclaimed by the charity, and no tax is paid (on the £125 donation).

beansy wrote: »

As the charity has already received £25 in Gift Aid wouldn't the remaining tax eligible to be claimed be £25?

No. Someone who has £100 net income after 50% tax has paid £100 tax, on £200 gross.

But HMRC treat it as someone who has donated £62.50, having paid £62.50 in tax (on £125 gross, again) - the charity reclaims £25 itself, and the tax payer has to give the charity the extra £37.50 (making £100) then reclaim it from the government later. (in effect)

Hopefully that makes sense.