That charitable tax cap

Much has been written and said since 21 March about the Budget proposal to cap income tax relief to claims of £50,000 or 25% of income, whichever is greater, from 6 April 2013. The cap may apply to pension contributions, EIS subscriptions and donations to charity, but it is the latter that has caught the headlines.

If you went by the headlines you might think that the cap was £50,000 and deeply unfair to big-time philanthropists who may give away £millions. But to make the Government’s point for them, the 25% cap on a donation of £10million means that £2.5million of relief can be claimed, not just £50,000. But of course it is not that simple!

The philanthropist has to pay income tax in the first place, leaving the lucky charity to claim it back from the Government under the Gift Aid scheme. True, the philanthropist does benefit from relief at the higher rates of tax (20% or 25% over the 20% basic rate) which he or she may otherwise pay. However, the relief may be spread between pensions or EIS subscriptions, and not just charitable donations.

The Government is said to be sticking to its policy. However, much lobbying will be taking place over the coming months for charitable donations to be treated differently to payments which directly benefit the individual (such as payments into their pension pot).

For an interesting insight into the debate see this link to the European Association for Philanthropy & Giving (EAPG) notes on a recent Forum at which a senior Treasury representative spoke and listened to representatives from the philanthropy sector.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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