Charity tax relief cap wreaks havoc

At the Any Questions on Friday Ken Clarke let the cat out of the bag when he said this was to prevent abuse through the use of charities in certain East European countries where (he said) regulatory oversight is not very good.  I think we can interpret this as meaning overseas charities in poorly regulated countries generally (think of the Money Laundering high risk countries).

What seems to be possible is that UK tax residents with links to those places make "charitable" donations tax free.  At some future time the local Trustees may decide to make the assets available to people or activities favoured by the donor, perhaps even himself and direct family members.

The obvious answer to any abuse in any form would be for the Charities Commission to do its job instead of trying to close down charity schools on behalf of their left wing friends, and make charity donations tax advantages available only to UK registered beneficiaries.  I suspect Osborne could not do that because EU regulations prevent selection among EU member states, all of which are regarded officially as having the same standards of law enforcement and propriety.

Yeh, right!

HMRC should not have an opinion on what should be a political judgement to be approved or rejected by the members elected to the House of Commons.

I wonder how many others than me are fed up reading and hearing paid bureaucrats giving us their views.  It happens too much from the tax office and from the police; in both cases they are their to serve the public according to law.  Any advice the ministers may seek should be given in private and ministers should answer to Parliament and the public.

Unelected and unaccountable bureaucrats could do well to get on with their duties.

how the poor from Eastern European countries can exploit our benefit system and the very rich from europe can exploit their charitable status. Either way we lose hands down.

It's hard to miss the mud slinging over this one but few facts seems to emerge.  Under the proposals, individuals are able to donate 50K or 25% whichever is higher.  What proportion of  charities income is from sources outside this range.  What proportion of charities income is from the wealthy (how do you define 'wealthy'? I'll say someone with income that should attract 50% tax).

I'm keen to understand how much charities would be hit by this move.

Then there's the question of which charities are being affected about which nothing concrete seems to be said.

"...which included a poll revealing nine out of 10 charity bosses thinking the plans will severely hit donations"

Which charities?  Which ones were polled?  Why are there no fact and instead just this rhetoric?

It would be unfortunate if charities providing long term care for the elderly, the terminally ill, researching cures for wide spread ailments or helping to alleviate hunger were significantly impacted.  But looking after some aging painting for the benefit of a small section of our society, perhaps not so much in my opinion.  Yours may vary but it would good to be able to base opinions on more facts not just the indignant fuming of an ill-defined group.

...but surprised no one has picked up on Sue Moore's comment being wrong surely:  “Despite the myth that a person can reduce their income tax liability to nothing by gifting to charity".

  Perhaps she said "cash" in there, but if you gift assets the it's a deduction from income (as well as being CGT free) so you can reduce your income tax liabiliy to nil.  You don't have to frank it with basic rate tax if gifting a qualifying asset.

As I say, this is not a political comment, just a tax point.

In effect, unlimited gifts to Charity allow individuals to decide how money that would have been taxed is spent. That cannot right in a democratc society. The government's approach is entirely reasonable.

Richard Rhodes

Unbelievable interview on "Today" this AM. Naughtie quoted Cable as saying " abusive tax evasion" several times and the Treasury spokesman didn't pick him up on it! Evasion/ avoidance-what's the diff?

The edges become ever more blurred.

those who don't understand tax see avoidance as illegal.....some have stopped using 'evasion' in interviews, they simply state tax avoidance and illegal in the same sentence.... 

If you do identify examples, at least on BBC Radio, where avoidance and evasion are conflated, then for goodness sake report them to mailto:feedback@bbc.co.uk

(Later ...) done !

When you click 'granny' you get the pastie tax article; when you click 'pastie' you get the age related article!

They could quite easily have introduced the measure in a non-destructive way by phrasing it as: "we are capping tax relief for donations to non-UK Charities".

Then the emphasis would have been on the 'non-UK' rather than the 'charities' in general.

Surely the Charity Commission have the power to revoke charitable status if they believe the situation is being abused?

Therefore

• Why has the Charity Commission not addressed this - perhaps they have; if so their findings should be published?
• For the very low incidence of abuse (100 out of 160k) why has the Government penalised all Charities, when in theory they should get the Charity Commission to act against the few

Is there something we are all missing with this?

Those few lines point to the arcane complexity of just this corner of the system. What a lovely earner "modern" tax systems are for accountants and lawyers. And, of course, the complexity suits those able to purchase our "skills".

Reading the comments following the full article on the ICAEW's site (ICAEW Tax Faculty - the link is toward the end of the article above) is just as revealing as the contributors assess the ambiguities and complexities. New lobbying opportunities, a chance to add more complexity. All in the name of fairness of course.

I am not accusing the profession of inventing the current tax system but it certainly does us no harm. Our interventions tweak it and add to the edifice. Real reform would almost certainly cost (at least, tax) accountants jobs and we all know how turkeys would vote.

landvaluetax.org.uk (Henry George - Progress and Poverty) and for the banks and bankers - positivemoney.org.uk (Steve Keen - Debunking Economics)

Once again the Government and politicians are flooding the press with misleading soundbites  and we are all left wondering exactly what GO's plan was.

Leaving aside the possible abuse of charity tax reliefs by certain overseas charities, which certainly needs to be stopped (although not with this rather blunt Budget proposal) - in my simple way of thinking, unlimited Gift Aid tax relief allows very wealthy benefactors to manipulate the Treasury by forcing them to divert their Income Tax 'subsidy' to their chosen cause. This doesn't seem a very strategic or targeted funding method.

The Budget proposal effectively says, "OK we'll chip in the Gift Aid tax subsidy up to a certain level, but if you want to give in excess you'll have to give out of your taxed income." Doesn't seem unreasonable to me.

As others have asked already, exactly how many donors at the top end are likely to reduce their giving? Is such giving really purely tax-motivated?

would undoubtedly fall foul of EU law - the scam appears to be the value at which shares are given to charity which are actually worth much much less than their apparrent transfer value hence the huge IT write offs

and as a correspondent said earlier they can still give to charity without tax relief , that would be exemplary

Brilliant.

Why not abolish tax entirely and give individuals even more leeway to decide which public services they will fund and which they won't.

http://www.bbc.co.uk/news/uk-politics-17724415

that the reason dodgy donation givers are giving it to Eastern European charities is so that they can at some stage "get their money back" so to speak, then anything the government does will not make any difference to the income of UK charities.

I agree with Nigel's comments above.

It costs a poor man £1 to give £1 to charity.  It costs a rich man 50p to give £1 to charity.  The rest of us have to find the other 50p to indulge the rich man's fancy.  Is that fair?

Stick to your guns George.

I agree with Richardr:

"In effect, unlimited gifts to Charity allow individuals to decide how money that would have been taxed is spent. That cannot be right in a democratc society. The government's approach is entirely reasonable"

and Nigel:

"unlimited Gift Aid tax relief allows very wealthy benefactors to manipulate the Treasury by forcing them to divert their Income Tax 'subsidy' to their chosen cause. This doesn't seem a very strategic or targeted funding method."

I seem to recall that restricted Gift Aid was introduced by John Major when he was Chancellor, then relaxed over several years by successive Chancellors until Gordon Brown opened it completely in 2000. So we cannot blame any particular party for Gift Aid. But now the subject is in the headlines, let's have a rethink.

Why should I have to have to subsidise some charity with my tax because "Mr Rich" decides he likes a particular cause (which I might not agree with)? The democratically elected Government can decide to support certain causes - and if we disagree we can express our opinion at an election. It should not be someone who has a lot of money who decides (possibly selfishly) where my money goes.

Osborne presented his case for limiting Gift Aid as a means of countering tax avoidance. He should keep the proposals but change his rationale.

I am struggling to see what is wrong with paying a tax rate of 0% if it has been received and given to charity.

I certainly wouldnt expect to pay 40% or more for income i had 'given' away to a registered charity.

The coalition government has justified this new limit by claiming that wealthy (or high income, I am not sure what their words mean any more) have gained unintended personal benefits from donations to charities above the proposed limits.

I find it hard to understand how donations to bona fide charities could possibly benefit the donor other than through the personal satisfaction of knowing they had done some good in the world.

Does the restriction also apply at death?

If the limits were to be imposed because the charities receiving the funds were considered to be undeserving or insufficiently charitable then the Charity Commission could investigate or different classes of charity could be invented.  For example

Premier division = Macmillan, and other actual hands-on care charities

First division = Medical research

..

..

Fourth division: charities which campaign but don't actually do anything, like Barnados these days, Christian aid, etc

"It costs a poor man £1 to give £1 to charity."

But how much would it cost a basic rate tax payer ? Or a 40% one ?

@asking - why? Why is charitable giving linked to tax relief, other than because it has been for some time. There's no logical or economic link. Having given unlimited tax relief for so long charities and Government have both got a problem here. I don't envy either of them!

The reason is simple. By giving tax relief to the tax payers for donations as an incentive, the government don't have to pay out for some of the work the charities do.

I think the reason people object is that they think the government should be taxing people enough to fund good causes that benefit everybody, not just the ones favoured by the richest.

The [UK] Charity Commission cannot deal with overseas charities and, it seems, in the usual countries, no one else does either.