Allergy to austerity

Wookster

So there has been an awful lot about a few matters in the budget.

- The 'granny tax' (can't people do basic maths before complaining?)
- The pastry tax
- Now the philanthropists are up in arms (and some are even threatening to donate less which simply proves the point that they are simply participating as a tax dodge. Appalling.)

The BBC are throwing their usual hissy fit giving this enormous coverage. And the austerity hasn't even started yet.

It makes me realise that the country is simply not prepared for austerity, and furthermore, no one is really making the case as to why it is necessary in plain and simple terms, yet Labour are still singing the spend song.

Should the coalition fail, we will be in for a gilt strike.

pineapple

I don't understand the argument that rich people are using charity donations to dodge tax - as if they were increasing their income in doing so. Say someone gives £400,000 of their income to charity. And to make it an easy calculation, say they are paying tax at 50%. Do the current rules mean they reclaim £200,000 of that? If so they gave £400,000 but got £200,000 tax relief. They aren't better off as a result. They still gave £200,000 away. But effectively the donation to the charity was subsidised by the chancellor to the tune of £200,000.
Did I get this right?
If the tax relief is reduced it's actually the charities which will suffer. Say it was taken away completely the donor above might well reduce the donation to £200,000 (to keep the net effect the same). Ergo the charity loses £200,000 while the tax man gains £200,000.
Surely all this is doing is penalising charities at a time when many are struggling through council cutbacks etc. The national charity which I used to work for has had to close offices and lay off staff and there must be many others which are also struggling.

chewmylegoff

I presume the suspicion is that people are setting up charities which benefit themselves, their families or their immediate communities only and then donating money to them. If that's the case though, why not just investigate the charities to which particularly rich people give a lot of money and if they aren't real charities then refuse the tax relief on a case y case basis.

In short, clamp down on the evasion disguised as avoidance, rather than binning the avoidance.

Alternatively there could be no real problem at all and the govt are just trying to opportunistically increase the tax take on the basis that "tax avoidance" is a high profile bogeyman right now (because 'the public' are stupid).

vivatifosi

chewmylegoff wrote: »

I presume the suspicion is that people are setting up charities which benefit themselves, their families or their immediate communities only and then donating money to them. If that's the case though, why not just investigate the charities to which particularly rich people give a lot of money and if they aren't real charities then refuse the tax relief on a case y case basis.

In short, clamp down on the evasion disguised as avoidance, rather than binning the avoidance.

Alternatively there could be no real problem at all and the govt are just trying to opportunistically increase the tax take on the basis that "tax avoidance" is a high profile bogeyman right now (because 'the public' are stupid).

I saw an article on this last night. It said that British philanthropists were giving to their own charities, or charities overseas. I'm guessing they don't want the money going out of the UK if they aren't going to benefit from the tax on it. If they stop people giving overseas, then all they will do is set up a charitable foundation in this country, then make donations overseas. Nevertheless, there has to be a way round this through charities laws, rather than disincentifying.

They intereviewed a guy working in this country in medical research. He said that mainstream donors don't want to give to work that's more unusual, less likely to yield results but if they do it will be a fantastic result. The donor in the street wants to invest in more gradual change but where a change will happen. He said that if he didn't get the funding from large philanthropists you wouldn't get the money for the breakthroughs.

AIUI this is misskool's field, so it would be interesting to hear her thoughts on this.

lostinrates

I have been waiting for this to be discussed, because i KNOW of situations where charitable giving is used as spectacular tax dodges, including donations off sure, to places like Cayman, which ultimately iresult in exactly the 'donors' non taxable income. Some relate to religion and education too, but i cannot really expand more without saying too much.

Cayman is not so bad, as chewy suggests, investigation would not be impossible there, but there must be places where once the money has been donated we cannot trace what happens to it, or intervene when it appears the money is dealt with legally under different laws?

misskool

My current post is funded by a philanthropist, he had the big C and is now in remission but would like to contribute something concrete. His donation is in the six-figure range, affected by the change. So for me, had this happened a few years ago, I would not have a job.

We are currently trying to fund another post using money raised from a man and his friends, again, they want to give because they believe in what we do (targeted therapy for specific cancers).

They give to us specifically because they get to meet us and we give them reports on our work and where we are progressing, we show them that science is real and is working and there is progress.

This is just a personal anecdote though.

pqrdef

Wookster wrote: »

It makes me realise that the country is simply not prepared for austerity

In the 60s and 70s we went on an orgy of self-destruction, even though we knew really that we couldn't carry on like that. It was no surprise when there was a reckoning.

This time round, people feel that they haven't done anything wrong and they didn't cause this crisis. They blame the City, and they think the City (which is still fabulously rich) should pay.

And so far, governments have had no success at all in persuading the City to come and live on the same planet as the rest of us.

But the growing gap between rich and poor is going to have to be addressed. There is going to be trouble unless people are persuaded that we really are all in it together.

princeofpounds

I don't understand the argument that rich people are using charity donations to dodge tax - as if they were increasing their income in doing so

As pointed out there is a significant abuse of the system because some people are giving donations to charities which don't perform any serious charitable work. I don't think it is particularly widespread, but we are talking serious sums of money, which is why a cap is being chosen as a method to control it.

Ideologically-speaking the current government would naturally be in favour of private charitable donation than the coercive extraction of tax, although there has been a big fuss kicked up I genuinely think that they are just struggling to deal with the problem.

For example:

I send my children to a nice swiss boarding school. It's a charity. In lieu of fees, I make a donation. I have just paid my school fees pre-tax.

I make a donation to a charity that builds housing for poor pakistanis. The charity builds a large house for a poor pakistani who also happens to be my grandmother.

and so on... (all examples are just illustrative, no idea how realistic they are).

There was a related scam used at home until recently, although the loophole has now been closed. You set up a company, which holds some financial investments as its only assets (say 100k). You list the company on the Jersey stock exchange (which largely exists for such dodges in my opinion).

You pump the share price up (after all, no-one else is dealing in shares except you so you can record any price transaction you like). The company is now valued at 400k.

You donate those shares to a charity. You wipe 400k off your taxable income for a cost of 100k + listing fees. The charity gets 100k so it's happy and isn't going to blow the whistle.

N1AK

The issue with the charity cap is that it stops all sizeable charitable donations in the name of stopping any 'abusive' ones. Has anyone seen any figures showing how much of the now taxable giving was 'abusive'? If it's 99% then I can see why they'd not worry about stopping legit giving, however I doubt it is that heavily biased.

I don't mind the government removing tax relief on charitable giving. After all people can still give away the money; it just means the charity doesn't get roughly double as much because of the tax back. What I do have an issue with is the fact that the government is doing this at the same time as making a big fuss about how important charity is and encouraging charity to do more that the government used to do.

N1AK

pineapple wrote: »

Do the current rules mean they reclaim £200,000 of that? If so they gave £400,000 but got £200,000 tax relief. They aren't better off as a result. They still gave £200,000 away. But effectively the donation to the charity was subsidised by the chancellor to the tune of £200,000.
Did I get this right?

The way tax relief on donations works is as follows. If you pay tax you can reclaim the tax on the part of your income you pay to charity. This effectively allows you to 'give' away the tax money rather than pay it as tax. So for example if someone was earning £100,000 at the highest rate (45%) then they could:
1/ Keep £55,000 and pay £45,000 tax
2/ Donate £100,000 and pay no tax

No matter how much they donate they will always have less money left than if they didn't. The abuse the government claims this is supposed to stop is where people have set up 'charities' that are basically trust funds or similar arrangements.

pinkteapot

pqrdef wrote: »

This time round, people feel that they haven't done anything wrong and they didn't cause this crisis. They blame the City, and they think the City (which is still fabulously rich) should pay.

Except people didn't turn down the cheap mortgages, 0% credit cards, cheap bank loans...

The government started the 'blame the bankers' frenzy to divert attention away from themselves and it worked spectacularly.

I'm not saying the city is faultless; not by a long way. But people bought the products they were offering.