More than 3000 charities have signed up to the Give it Back George campaign, urging the Chancellor to reconsider the controversial tax on wealthy donors that could cost them millions of pounds in lost donations.
At the moment, anyone can give as much money as they choose to charity and claim tax relief on the donation. But Chancellor George Osborne wants to cap tax relief on annual donations of £50,000 or 25% of income, whichever is greater. The UK government insists the cap is necessary to combat tax abuse by wealthy donors. But there is fierce resistance from charities, and the plans have sparked a huge political row which is reported to be prompting the Chancellor to amend the proposal.
John Low, chief executive of the Charities Aid Foundation, says: "If there are specific problems with the current system we would naturally be delighted to work with the Chancellor to ensure tax reliefs are used for the purpose intended.
"But imposing a blanket cap on tax relief will cost charities millions of pounds-. and undermine the idea of the Big Society which the Government is trying to promote."
Brewin Dolphin, which manages over £25 billion on behalf of private investors, says many of its clients give away millions in charitable donations.Lynne Lamont, the firm's head of charities for Scotland & Northern Ireland, says: "Claiming that philanthropists are generally giving money to good causes as a way of dodging tax is an outrageous slur. For centuries the foundations and bedrock of the charitable sector has been the generosity of those who see needs in society that charities are very well placed to address. Just considering the generosity of own clients, we expect this measure to reduce charitable giving by billions each year."
Of course, most of us cannot afford to give away £50,000 a year. The average annual donation in Scotland in 2011 was £83, according to Foresters, a financial services group. The donations might be relatively small but nearly nine out of 10 Scottish adults (88%) gave money to charity last year, despite the financial squeeze, and 87% plan to donate in 2012.
The main barrier to financial charitable giving appears to be tighter budgets in the wake of the rising cost of living. Three-quarters of those who do not give to charity say that this is because they do not have enough money.
When money is tight, it is particularly important to make your charitable gifts go further – and there are a number of ways to make tax-efficient donations to charity.
Gift Aid, which only involves completing a simple form, is the most popular way to boost the money you give to charity and it doesn't cost you a penny, yet the Charities Aid Foundation (CAF) estimates around £700 million of Gift Aid goes unclaimed each year. Gift Aid allows the charity to reclaim basic-rate tax on your donation. So, if a donor gives £100 to a good cause, the charity can reclaim 20% on the gross gift of £125, or £25.
If you pay tax at the higher rate, you can claim the difference between the higher and basic rates of tax on the total gross value of your donation to the charity. For example, if you donate £100, the total value of your donation to the charity is £125, so you can claim back £25 if you pay tax at 40%, or £37.50 if you pay tax at 50%.
If you are paid through PAYE, you can give money to charity directly from your salary or pension using a Payroll Giving scheme. It costs you less because your donation is given to charity from your gross salary or pension, before tax is deducted.
A monthly donation of £15 through Give as You Earn would therefore cost a basic-rate taxpayer just £12. If you pay tax at 40%, the donation would cost £9, or £7.50 if you pay 50% tax.
You just need to make sure your employer is signed up to the scheme.
Don't forget that you can leave gifts to charity in your will. Your beneficiaries are normally liable for inheritance tax (IHT) at 40% on the value of your estate above the 'nil rate band' – currently £325,000. But gifts to charity in your will are exempt from IHT. Gifts made to a charity in the seven years before your death are also IHT-free.
You can also claim income tax relief at your highest rate if you give an asset, such as a share, land or property, to a UK charity, or sell it to a UK charity at less than its market value. And you don't have to worry about capital gains tax when you give any assets away to charity. But who is the new rule supposed to catch?
Tax accountant George Bull at Baker Tilly says one of the principles underlying gift aid is that the donor must pay sufficient tax to cover the basic rate tax which the recipient charity will reclaim.
"If this is not the case then HMRC will send the donor a bill. It is not possible, therefore, for gift aid donations to reduce the donor's tax rate below 20%. No-one is going to embark on tax avoidance that leaves them with less money than if they had done nothing, but this is precisely what genuine charitable giving results in so its use for tax avoidance is illogical.
"There are already weapons in HMRC and the Charity Commission's armoury that can be used to counter sham charities. Restricting tax relief on genuine charitable giving is a step too far which is likely to prove detrimental to charities and society in general."
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