As Simon Sweetman notes at AccountingWEB, the Revenue have published a report on charitable giving. As he concludes:
it seems that tax reliefs make little difference, with most givers professing not to understand them.
I read the report a week or so ago and came to the same conclusion, although my over-riding impression was that the analysis was weak.
But what no one seems to have asked (until now) is what is the intellectual, moral, or financial justification for giving higher rate tax relief on these donations? This tax relief costs £210 million a year. Why is it that if a wealthy person gives to charity their doing so should be rewarded in this way but if a basic rate tax payer does so they see no personal benefit? I see no logic in this at all.
I suggest that if Gordon Brown wants to boost the development budget he scrap this higher rate relief and put the money paid into the development pot instead. It will only be a gesture, but it would be an important one. It would show that wealth was being reallocated from the richest to the poorest. And isn't that the direction of travel we'd expect?
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“Why is it that if a wealthy person gives to charity their doing so should be rewarded in this way but if a basic rate tax payer does so they see no personal benefit? I see no logic in this at all.”
Richard, if you’re going to be disingenuous, at least show some subtlety 🙂
You are perfectly well aware of “the logic”: charitable donations can be made from pre-tax income.
To make things simple, the government allows charities to accept donations from the *post*-tax income of taxpayers and reclaim the tax from the treasury. For reasons of complexity (I assume), they work on the basis that a given donation was from a standard-rate taxpayer when paying the rebate to the charity.
However, the “charitable donations from pre-tax income” principle still applies and higher-rate taxpayers are able to reclaim the difference through their tax returns…. what is so wrong with that?
Most people take into account such things when calculating how much to give.
Richard
I wasn’t being disingenuous. Of course I understand the point you make. BUT the point I make is twofold. As the research shows, your last point is wrong: people do not understand higher rate tax relief and do not take it into account when planning their charitable giving. Second, if that is true (and wide experience with clients suggests it is so) then if the benefit of the tax relief at higher rate is to be given it should go to charity, not to the individual. That is what they would wish, I think.
The suggestion I have made is, therefore, genuine. Cut the releif for individuals but allocate a specific sum for development as an alternative. It would save vast amounts af tax admin, and be effective. What’s the problem?
Richard
I accept that some people may not understand the system. However, I see absolutely no justification at all in the government arbitrarily allocating the rebate to a cause of their own choosing. I also accept that having two tick-boxes for gift-aid (one for lower; one for higher-rate payers) may be too cumbersome (and there would be too much temptation for charity representatives to get people to tick the higher-rate one so that their kickback was higher).
Given this, perhaps the best proposal is to take an assessment of how much rebate was “owed” to higher-rate tax-payers and allocate it to a basket of charities, based on their lower-rate gift aid receipts?
I could live with the ‘basket case’!
‘basket case’
🙂
Getting back to the original question as to why wealthy people need to be rewarded for giving to charity, there was an interesting entry by David Barrie of the Art Fund on a Guardian blog a few weeks ago:
http://blogs.guardian.co.uk/art/2007/05/give_art_donors_a_break.html
Mr Barrie argued that the UK should emulate the US and offer “extremely generous tax incentives” to “wealthy philanthropists” in order to “nudge” them into giving to charity. In other words, as well as needing lots of “donor recognition”, wealthy people won’t give to charity unless they get what in this case would be a very substantial “break”. Others might call it a kickback or worse.
Worse, I think.
If they need that much incentive they might as well buy the art.
Your response to the idea of an incentive is very interesting and reflective of cultural differences.
Americans do not look at the tax deduction as a ‘kickback’ so much as an opportunity to redirect funds away from the government (which they find ineffectively spending their money) and towards charities (which in their minds provide a better social return on their investment).
Essentially, your argument (right or wrong, I don’t know) is that the government does a good job of meeting the needs of society and that philanthropy can simply augment that. Most Americans fundamentally cannot envision a scenario where that would be the case.
For the record (as an American) I don’t buy that argument, but it is how people feel here.