02 April 2020 - Article
The Chancellor’s budget speech heralds some significant – and in some cases unexpected – changes to the reliefs available for charities and philanthropists. Reforms to gift aid relief and a new inheritance tax break will both be warmly welcomed by the sector and, although there are some disappointments, this is a budget with much-needed opportunities for the charitable sector.
From April 2013, charities will be allowed to claim gift aid relief on up to £5,000 of small donations per year without the need for any gift aid declaration. This will allow charities to claim gift aid on more money raised through the collecting tin and street bucket. We will need to see how the detailed rules will work but this should be a boost particularly for smaller local charities. The Chancellor hopes that 100,000 charities will benefit to the tune of £240 million.
The budget also reduces bureaucracy for charities through the introduction of a new system of online filing for gift aid claims by 2013, starting this year with the introduction of intelligent forms with automatic checks. To help pay for the online gift aid claims system, the Chancellor has withdrawn the Self-assessment (‘SA’) Donate scheme from tax year 2011-2012 onwards, which is little used anyway.
We are pleased that the Budget goes further than Economic Secretary, Justine Greening, suggested in her response to the Gift Aid Forum’s suggestions for reform in December 2010. It is hoped that the government will be committed to assisting charities in publicising the benefits of gift aid to donors and charities moving forward.
The proposals for the merger of NI and Income Tax – although still some way off – will be watched with intent, particularly in relation to their interaction with Gift Aid.
Abolished tax reliefs
The Office of Tax Simplification made several suggestions related to charitable tax reliefs earlier in the year, many of which have been followed in the budget. As predicted, the transitional gift aid relief and Millennium Gift Aid will both be abolished. The government has chosen to retain the Community Investment Tax Relief, which will be a relief to the financial bodies making use of this tax break – although there is work to be done in raising awareness of its benefits.
The government has also committed to exploring how they can increase the take-up of Payroll Giving, although no concrete proposals have been released, and the consultation on a VAT exemption for services shared by VAT-exempt bodies, including charities, will continue.
Impact assessment reports
Starting with the Budget 2011, the government will publish a tax information and impact note (‘TIIN’) for tax policy changes which will, for the first time, include an appraisal of the effects of the changes on civil society organisations. These notes will be published on HMRC and HM Treasury websites whenever substantive changes in tax and National Insurance policy are introduced in future.
Commenting on the provisions on philanthropy, Alana_Lowe-Petraske, a solicitor in the Charities and Philanthropy team at Withers, says: “Mr. Osborne has announced a number of truly positive measures connected with philanthropy and charitable giving in today’s Budget. Though there are some surprises, all the announcements are consistent with the underlying theme of the government’s recent Giving Green Paper: to foster a culture of giving through facilitating small donations, consulting on fiscal incentives and thanking and honouring donors.”
Most important of all in the philanthropy sector is the announcement that from 6 April 2012 those who donate 10% or more of their net estate to charity will receive an inheritance tax break of one tenth. This will be set out in the Finance Bill 2012 and will be designed in a way to route the benefit to the charity rather than to beneficiaries of the estate.
Some in the sector responded cynically to the Giving Green Paper’s consultation on whether the government could or should try to establish cultural giving norms directly. As always, the devil will be in the detail, but this is a very exciting change for charitable giving and should prove to be an extremely welcome development for UK philanthropy. At a minimum it signifies that the government is committed to growing the UK giving culture at high and low-value donation levels and is not just interested in endless consultations.
Works of Art
Mr. Osborne also announced a consultation on proposals to encourage gifts of works of art and items of historical value which was thought likely by many in the sector. We and many others in the sector have argued for changes to be made in this area following on from the 2004 Goodison Review and this consultation is very good news. Considering the mature market for valuation and the acceptance in lieu of a tax scheme that already exists for gifts on death, we hope the outcome of this consultation adds to the range of tax-efficient lifetime giving options for donors.
We are disappointed not to see a similar consultation opened on lifetime legacies, which we, together with key sector bodies such as the Charity Tax Group, European Association for Philanthropy and Giving, and the Society for Trusts and Estate Practitioners (STEP), have been calling for in the past year. We renew our call for the government to look seriously at enabling this hugely popular US giving mechanism to be introduced in the UK in a tax-efficient manner in order to grow both the size and value of UK philanthropy.
The Chancellor has also announced a rise from next month in the maximum level of donor benefit which is acceptable within the Gift Aid scheme, from £500 to £2,500. This is clearly aimed to help foster a culture of giving by allowing the 5% benefit principle to apply to much larger gifts lifting and loosening the restrictions on charities showing their thanks and appreciation to high-value donors. Whether this will achieve an increase in giving by value remains to be seen, but the move is definitely in line with the government’s focus on enabling charities and society to thank and honour donors.
Tainted Charity Donations
Next month will also bring the introduction of new anti-avoidance rules to replace the onerous and flawed substantial donor rules. The new Tainted Charity Donations rules aim to remove the confusion and unintended consequences of the existing regime, but we will be interested to see the form of the legislation actually enacted, as we expressed our serious concerns about the draft legislation in informal consultation in recent months.