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  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 12th Apr 12, 10:40 AM
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    Former MSE Helen
    MSE News: Charities fear tax relief backlash
    • #1
    • 12th Apr 12, 10:40 AM
    MSE News: Charities fear tax relief backlash 12th Apr 12 at 10:40 AM
    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"

Page 1
    • N1AK
    • By N1AK 12th Apr 12, 11:48 AM
    • 2,847 Posts
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    N1AK
    • #2
    • 12th Apr 12, 11:48 AM
    • #2
    • 12th Apr 12, 11:48 AM
    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
    • By thelawnet 12th Apr 12, 11:50 AM
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    thelawnet
    • #3
    • 12th Apr 12, 11:50 AM
    • #3
    • 12th Apr 12, 11:50 AM
    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????
    Last edited by thelawnet; 12-04-2012 at 11:53 AM.
  • antonia1
    • #4
    • 12th Apr 12, 2:33 PM
    • #4
    • 12th Apr 12, 2:33 PM
    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.
    Originally posted by thelawnet
    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

    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????
    Originally posted by thelawnet
    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
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    • busybee100
    • By busybee100 12th Apr 12, 4:31 PM
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    • #5
    • 12th Apr 12, 4:31 PM
    • #5
    • 12th Apr 12, 4:31 PM
    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.
    Last edited by busybee100; 12-04-2012 at 6:08 PM.

    • HalloweenJack
    • By HalloweenJack 12th Apr 12, 4:35 PM
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    HalloweenJack
    • #6
    • 12th Apr 12, 4:35 PM
    • #6
    • 12th Apr 12, 4:35 PM
    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
    • By thelawnet 12th Apr 12, 10:51 PM
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    thelawnet
    • #7
    • 12th Apr 12, 10:51 PM
    • #7
    • 12th Apr 12, 10:51 PM
    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.
    Originally posted by antonia1
    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
    • By jrawle 13th Apr 12, 8:44 AM
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    jrawle
    • #8
    • 13th Apr 12, 8:44 AM
    • #8
    • 13th Apr 12, 8:44 AM
    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.
    Originally posted by busybee100
    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
    • By jrawle 13th Apr 12, 8:51 AM
    • 235 Posts
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    jrawle
    • #9
    • 13th Apr 12, 8:51 AM
    • #9
    • 13th Apr 12, 8:51 AM
    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?
    Originally posted by thelawnet
    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
    • By thelawnet 13th Apr 12, 9:59 AM
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    thelawnet
    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?
    Originally posted by jrawle
    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
    • By jrawle 13th Apr 12, 10:50 AM
    • 235 Posts
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    jrawle
    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.
    Originally posted by thelawnet
    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.
    • thelawnet
    • By thelawnet 13th Apr 12, 12:36 PM
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    thelawnet
    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.
    Originally posted by jrawle
    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
    • By dori2o 13th Apr 12, 6:41 PM
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    dori2o



    You can still give. No law against it.
    Originally posted by thelawnet
    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
    • By katsu 14th Apr 12, 11:31 AM
    • 4,459 Posts
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    katsu
    This is only going to affect those who wish to give more than 166,667.00 in contributions.
    Originally posted by dori2o
    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.
    Debt at highest: 8k Debt Free 31/12/2009 (nine years and counting ) Original MFD: May 2036. MF Dec 2018
  • Arg
    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????
    Originally posted by thelawnet
    Ironically there's plenty of fake charities that get handouts from the government.
    • dori2o
    • By dori2o 14th Apr 12, 4:14 PM
    • 7,814 Posts
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    dori2o
    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.
    Originally posted by katsu
    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
    • By dtaylor84 15th Apr 12, 10:44 AM
    • 635 Posts
    • 519 Thanks
    dtaylor84
    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.
    Originally posted by thelawnet
    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
    • By beansy 15th Apr 12, 3:29 PM
    • 407 Posts
    • 353 Thanks
    beansy
    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.
    Originally posted by thelawnet
    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
    • By dtaylor84 16th Apr 12, 7:29 PM
    • 635 Posts
    • 519 Thanks
    dtaylor84
    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.
    Originally posted by beansy
    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.

    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?
    Originally posted by beansy
    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).

    As the charity has already received 25 in Gift Aid wouldn't the remaining tax eligible to be claimed be 25?
    Originally posted by beansy
    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.
    Last edited by dtaylor84; 16-04-2012 at 7:31 PM.
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