Cap on Tax Relief could affect charitable donations

In his 2012 Budget statement, Chancellor George Osborne announced proposals to cap tax relief for charitable donations. The proposal has created a furore among the charity sector. But what does it really mean and what can we do?

What’s the problem?

At present individuals can make unlimited donations to charity and qualify for full tax relief on their gifts. This provides a great incentive for those considering giving a large donation, and charities not only benefit from the initial gift, but often the supporter will donate the reclaimed tax as well. But The Chancellor has proposed to cap tax relief at £50,000 or 25 percent of annual income, whichever is the greater. This in effect means that donations over £200,000 from high rate (40%) taxpayers would be subject to the proposed cap. The same is true for donations of £133,000 for a 50% taxpayer, or £160,000 for a 45% taxpayer.

What’s the potential impact?

A big concern is that this will create a barrier to giving for big givers and smaller givers alike. Those capable of making really large donations will be put off as the ‘cost’ of their giving will rise, while people making smaller but still significant donations to multiple charities may find it too complicated to keep track of their tax relief cap. It could lead them either to make fewer or smaller donations or be put off altogether.

In a survey conducted over the weekend, 83 percent of major donors asked said that the change would reduce philanthropic donations. A quarter of them said it would reduce their giving.

What happened to the ‘Big Society’?

This cap sends a message to charities and supporters that runs counter to the Big Society. At a time when the Government is calling on an already financially hit sector and philanthropists to fill the gap in service provision left by government cuts, it’s a metaphorical slap in the face for charities and donors alike.

While we fully support the principle that the wealthy should pay their fair share of tax, likening charitable giving to tax avoidance has angered many. There are still many unanswered questions around the detail of this proposal, and the lack of clarity is a large part of the problem. T hat’s why we’ve signed up to the Give It Back George campaign, and urge the Government to meet with and listen to the sector to understand the potential impact this policy will have.

What can you do?

If you’d like to support the campaign to ask George Osborne to re-think the tax relief cap, you can add your name at http://giveitbackgeorge.org/back-the-campaign/ Please mention in the section inviting your comments that you are a CAFOD supporter.