Philanthropists hit back at Budget "anti-avoidance" tax relief cap

12 April 2012

Leading philanthropists have gone to the media to criticise the Treasury's plans to limit the amount of tax relief allowed to charitable donors.

The proposed measure will cap total income tax relief at GBP50,000 or 25 per cent of a person's annual earnings, whichever is greater. It will affect all reliefs that are currently uncapped, such as business loss relief and gift aid relief to recognised charities.

One of the most prominent opponents of the proposal - announced without warning or consultation in last month's Budget - is Dame Stephanie Shirley, the former UK government's Founding Ambassador for Philanthropy. As well as giving TV interviews she has written an open letter to Prime Minister David Cameron expressing "deep dismay" at these "naive, vague and ill-considered proposals", which she says are already discouraging donations from major philanthropists.

The PM, and Chancellor George Osborne, have been briefing the press that many UK residents with high incomes are paying "virtually no income tax" because they make large donations to dubious charities. HMRC apparently showed Osborne anonymised copies of tax returns submitted by some of the UK's wealthiest people - labelled "Britain's twenty biggest tax avoiders". These purportedly showing that, after tax reliefs, these individuals paid about 10 per cent of their income in tax. Osborne told the Daily Telegraph that he was "shocked" by this finding - which cannot be checked because the tax returns are of course confidential.

Dame Stephanie replied: "It is claimed, without producing a scrap of evidence, that these measures are essential to prevent tax evasion and fraud. We doubt that. Instead, these plans, if enacted, would limit giving."

Another allegation - made in public several times by both Osborne and Cameron - is that the wealthy are claiming relief on donations that are not really charitable at all. They did not provide any specific examples of such abuse, though, despite being asked by several interviewers why they had to stop it by capping all relief rather than simply by reporting the specific offenders to the Charity Commission.

Some of the claims made by the government are not even approximately true, according to George Bull TEP of tax specialists Baker Tilly. For example a Treasury statement says "individuals can offset their entire income against income tax reliefs, and as a result pay no income tax at all".

"That is false, and in the case of charitable donations made within the gift aid scheme, completely false", says Bull. "Donors must pay sufficient tax to cover the 20 per cent gift aid repayment made by HMRC to donee charities. To the extent that individuals donate to charity under gift aid, they must already pay an effective minimum rate of tax of 20 per cent. It is a myth that a person can reduce their income tax liability to nothing by gifting to charity."

The issue has now been pushed right to the top of the national news agenda, with more politicians making statements every hour. Charities may now be hoping that the government consultation paper on the relief cap, due this summer, may try to exclude charitable relief from its scope. The Treasury may be regretting ever including it.

Sources

Ambassadors for Philanthropy (Shirley's letter to PM)

Telegraph

Third Sector

Independent

Telegraph

Observer

Civil Society

NCVO

Treasury statement (PDF)