Keep the Gift Aid Tax Break, UK Fundraisers Say

March 10, 2009, Third Sector — Last month's announcement in the US of proposals to limit tax relief on donations by higher-rate taxpayers has increased concerns about reforming a comparable aspect of Gift Aid in the UK.

Academics in the US are concerned that the proposal could reduce giving by high-income households, and some UK experts fear there could be a similar effect here.

Some in the sector have argued that charities should be able to claim back the higher rate of tax on Gift-Aided donations by higher-rate taxpayers. At present, higher-rate taxpayers can claim for themselves the difference between the standard rate and the higher rate.

HM Revenue & Customs is conducting research to determine whether the reclaimable tax is an incentive to give. A spokeswoman said HMRC was still in the process of commissioning and designing the research.

If the results, due out in September, show the tax breaks do not motivate donors to give, some argue the extra amount should be channelled directly to charities.

But others are warning that any such change could have a negative impact on UK fundraising and question whether the research would be reliable.

Third Sector asked three fundraising experts to give their views.

MARTIN KAUFMAN, HEAD OF DEVELOPMENT, MUSEUM OF LONDON

"If this went ahead it would not only cause a decline in major giving, but it would also cripple the growth of mid-level giving, an important growth sector in fundraising. Higher-rate tax relief is a much more effective tool in mid-level giving - annual or one-off giving of between £1,000 and £10,000 - than in major gifts. By removing this incentive, you increase the risk of donations either not happening or being reduced. The system should be left as it is, but marketing of the link between higher-rate tax relief and Gift Aid must be improved."

CLIVE CUTBILL, HEAD OF PHILANTHROPY, LAW FIRM WITHERS WORLDWIDE

"Tax benefits don't make people give to charity, but they do facilitate the process. This is a perfectly good system and it ain't broke, so why fix it? If the benefit is taken away, higher-rate taxpayers will in effect be penalised. Instead of giving the original amount they might have done, well-advised donors will just reduce their gifts so that the net donation is the same. So in the long term, the amount charities receive will remain the same - even if, in the short term, donations increase because people aren't aware of the change."

CATHY PHAROAH, CO-DIRECTOR, CENTRE FOR CHARITABLE GIVING AND PHILANTHROPY

"Getting an adequate sample of very wealthy donors is extremely difficult for any study. It will be very hard to get a true reflection of the likely behaviour of wealthy donors, because some might not want to say they would rather keep the tax break. They might feel it looks non-altruistic. Also, if you take away the tax break incentive there will be less need for advisers on charitable giving, which could have a negative impact on the sector because there would be fewer people advising donors on the best way to invest money."

WHAT OBAMA SAID
Last month, President Obama proposed reducing tax breaks on charitable donations by higher-rate taxpayers to fund reform of the US healthcare system.

The budget proposal, not yet approved by Congress, would affect households earning a combined annual income of $250,000 or more from 2011.

Under the plan, higher-rate taxpayers would no longer be able to claim back 33 or 35 cents per dollar donated as in the current system, depending on the tax bracket they fall into. The amount would instead be capped at 28 cents per dollar.

Indiana University's Center on Philanthropy has estimated that, had the proposals come into effect in 2006, giving by high-income households would have dropped by almost 5 per cent.