One of the biggest concerns for the charity sector in today's Budget is the Chancellor's announcement of a cap on income tax reliefs, including Gift Aid. From April 2013, the intention is to cap all uncapped income tax reliefs, including Gift Aid, at a maximum of £50,000 or 25% of a donor's income, whichever is the greater.
While this announcement is not expected to affect the tax reclaimable under the Gift Aid scheme by charities themselves, the cap will apply to the element of tax reclaimable by donors on making Gift Aid donations. Research shows that donors do not give simply in order to obtain personal tax reliefs, but the existence of the tax relief provides additional incentives towards charitable giving. The removal of this uncapped relief may discourage high-level gifts by some of the country's biggest philanthropists, which could have a substantial effect on the level of charitable giving by wealthy individuals in the UK.
Although the Government proposes to consult with philanthropists on the possible impact that this Gift Aid restrictions may have on charities dependent on major donations, the charity sector is rightly concerned at the impact which the Chancellor's proposal will have on large scale charitable donations.
Charities owning listed buildings may suffer VAT hit
In other announcements affecting charities, the Chancellor has announced the removal of VAT zero rating on the alteration of listed buildings, which may affect charities which own listed buildings – including places of worship and historic houses – and who are otherwise unable to reclaim VAT on alterations. The Treasury calculates that it will receive an additional £450 million from this change, a proportion of which will come from the charity sector.
Previously announced changes to charity tax
A number of previously announced changes to charity tax were confirmed in today's Budget statement:
The ability to make donations to charity directly through a taxpayer's self assessment tax return is abolished from 6th April 2012.
A new 36% rate of Inheritance Tax will apply to all deaths on or after 6th April 2012, where the testator has left at least 10% of his or her estate to charity.
From April 2012, gifts of pre-eminent objects to the Nation will enjoy a 30% tax reduction (20% for companies making gifts), provided that the object is accepted. This will be subject to a cap on the value of objects which can be accepted in any one year. It remains to be seen whether this relief will also be subject to the £50,000 income tax cap announced in today's Budget statement.
Charities will be able to claim Gift Aid on small donations of up to £20, to a total value of £5,000 in any one year, with effect from April 2013.
In-year repayments of Gift Aid by charities and Community Amateur Sports Clubs (CASCs) will be put on a statutory footing from April 2012 onwards, instead of being reliant upon HM Revenue & Customs concessions.
Other announcements on charity tax measures
The Government proposes to pass further legislation to ensure that the Community Amateur Sports Club (CASC) scheme is working as the Government intended, and will work with the charity sector to ensure that Gift Aid administration in relation to charity shops will be simplified.
Additional restrictions in relation to Heritage Maintenance Funds (HMFs) will be introduced in 2013 to allow for continued deferral of Capital Gains Tax where assets pass from one HMF to another. This provision will be backdated to April 2012, and will be subject to an informal consultation process.