Donors who give more than a million pounds will be badly hit by a new cap on tax relief on giving, according to Beth Breeze, the author of a report into million-pound donors.
The cap, announced in the Budget yesterday, means that from April 2013 the tax relief an individual can claim in any year is limited to a quarter of their income or £50,000, whichever is higher.
Breeze, a researcher in philanthropy at the University of Kent and author of The Million Pound Donors Report 2011, which chronicles all donations of £1m or more to charity, said many individuals setting up foundations would be able to reclaim significantly less tax.
"Not a lot of people set up million-pound foundations, but it forms a significant proportion of charitable donations," said Breeze. "Last year there were 26 gifts to foundations of more than £1m, totalling just under £594m.
"Typically, people set up foundations once in a lifetime because they’ve received a legacy, sold a company or even got a large divorce settlement.
"It’s often most of their yearly income, meaning they’ll lose out under this new tax rule."
Today, with tax relief, the cost of setting up a million-pound foundation is £500,000, said Breeze. This time next year, it could be £750,000, she said. Many people setting up foundations also gave their tax relief to the new body, so this was likely to mean not only that donors would be discouraged from doing so, but that less money would enter the charitable sector.
Breeze said that major donor fundraisers had already started to contact her to say they were worried about the repercussions.