Sector fears Budget's tax relief changes will make large donations less likely

Cathy Pharoah of Cass Business School says a limit on reliefs will hit only a few donations, but they would be the very largest of all

Cathy Pharoah
Cathy Pharoah

An announcement in the Budget limiting the amount of tax relief individuals can claim could make it more expensive and difficult to make large donations, experts have warned.

Chancellor George Osborne announced in his speech today that no one will be able to claim tax relief worth more than a quarter of their income, including higher-rate relief on gifts to charities, unless they are claiming less than £50,000.

"From next year, anyone seeking to claim more than £50,000 of these reliefs in any one year will have a cap set at 25 per cent of their income," he said.

It is likely to mean that any philanthropist wanting to give more than a quarter of their income will not be able to claim tax relief on all of it.

And it could mean that a philanthropist looking to donate more than a single year’s income to establish a charitable foundation will be able to claim tax relief on only a small proportion of that.

It is not clear whether a charity would be able to claim Gift Aid on the whole amount of a donation if the donor was giving more than a quarter of his or her income.

The Budget document promised that the government would "explore with philanthropists ways to ensure that this measure will not impact significantly on charities that depend on large donations", but did not suggest how this might be done.

Cathy Pharoah, professor of charity funding at Cass Business School, said: "This is a move that will hit the very largest donations hardest.

"It is likely only to affect a few thousand donations a year, but they will be the extremely big ones."

Katherine Smithson, a policy officer at the Charity Finance Group, said the decision created significant logistical problems for donors.

"This will make tax-effective giving much less attractive and much more difficult," she said. "It’s likely to be extremely complex.

"Many of these donors won’t even have a clear idea of what their income is. They might also want to claim several other tax reliefs."

Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said the move "really sets alarm bells ringing" because it could have a negative impact on donations.

"Eight per cent of donors give almost half of the amount that is given to charities every year, so this measure could have very serious consequences," he said. "It is positive, though, that the government has pledged to work with philanthropists to explore ways of reducing this impact."

John Low, chief executive of the Charities Aid Foundation, said: "Tax relief on major donations is not tax avoidance. It is supporting major donations by people who in some cases are donating the proceeds of a lifetime’s work to charity.

"Such a change risks reducing major donations by Britain’s richest individuals at a time when charity budgets are being squeezed. We need urgent talks with the Treasury to ensure that this does not affect charity finances."

See our round-up of stories on the 2012 Budget

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