Sector leaders seek formula for Gift Aid and the richest donors

Experts divided over whether tax breaks are an effective incentive

Sector leaders are trying to agree a formula that will not put high earners off giving to charity under one of the proposed reforms of Gift Aid.

At present, those paying income tax at the higher rate can claim for themselves the difference between the standard rate and the higher rate when they make Gift-Aided donations.

Many in the sector have argued that few higher-rate taxpayers bother to claim this tax break and that charities should be able to claim the tax paid at the higher rate on donations, as well as the lower rate, as at present.

The Treasury is currently researching whether this change would deter people from giving (17 February, page 1), and some sector leaders are concerned that this could be the case for some very wealthy donors.

It was suggested at a recent meeting between sector leaders and Stephen Timms, Financial Secretary to the Treasury, that it might be wise to allow the wealthiest givers to retain the option to benefit from the higher-rate tax break. But one tax expert, who asked not to be named, told Third Sector that the idea was unlikely to be practicable because it would discriminate between classes of taxpayer within the same band.

Stephen Bubb, head of chief executives body Acevo, who was at the meeting, said he was opposed to different options for different levels of giving.

"All reclaimable tax just needs to go straight to the charities," he said. "People give because they give, not because they can get tax back."

But he said that some bigger foundations were nervous about removing tax breaks. If the research showed tax breaks were a real incentive, it might be a realistic option to have a cut-off, Bubb said.

Helen Donoghue, director of the Charity Tax Group, said many higher-rate taxpayers did not want to declare themselves as high earners in case charities went after them for more. "It's clear the tax breaks aren't really an incentive," she said.

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