Gift Aid changes 'would not deter donors'

Redirecting higher-rate tax relief is unlikely to affect the amount wealthy donors give, says Treasury report

  • A correction has been made to this story: see final paragraph

Redirecting higher-rate tax relief from donors to charities would be unlikely to trigger a significant fall in donations, according to research produced for the Treasury and HM Revenue & Customs.

An online survey of nearly 4,000 donors who had recently made Gift-Aided donations proposed three possible ways that the sum received by charities could be increased.

The first was that the full rebate available to higher-rate taxpayers should be redirected to charities. Charities can currently claim tax relief only at the basic rate of income tax, with the difference between that and the 40 per cent higher-rate tax band available only to the donor.

The other two suggestions were to introduce a "composite rate" of relief, set between the basic and higher tax rate, that charities could claim regardless of which tax rate their donors paid. The report's authors look at one rate of 30 pence in the pound and another of 37 pence in the pound.

The research, which was supplemented by interviews with 12 people who gave more than £100,000 a year, found that only 35 per cent of higher-rate donors reclaimed higher-rate tax relief. But they accounted for nearly 80 per cent of the value of donations from higher-rate donors. The more people gave, the more likely they were to reclaim the rebate, it found.

But the results also suggested that most higher-rate donors would prefer all higher rate relief to be given to charities. They also showed that the majority of donors in all tax bands would not change their giving behaviour in response to Gift Aid changes.

The research estimated that a composite rate of 37 pence in the pound would increase charities' Gift Aid income by 22 per cent, but a rate of 30 pence in the pound would decrease it by 4 per cent. The redirection option would result in a 6 per cent gain for charities.

The research did not look at the practical consequences of implementing any changes.

A spokesman for the Treasury declined to comment on whether any reforms would be introduced. "We recognise the resource the sector has invested," he said. "Rushing into major reforms of Gift Aid risks damaging what is widely seen as a very successful system."

  • The third paragraph from the end should read as follows: The research estimated that a composite rate of 37 pence in the pound would increase charities' Gift Aid income by 10.3 per cent, but a rate of 30 pence in the pound would increase it by 2.4 per cent. The redirection option would result in a 4.2 per cent gain for charities. Apologies.

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