Mixed reaction to higher-rate tax increase

Experts say changes could discourage wealthy donors from giving, but might also represent opportunities for charities

The new 50 per cent tax rate on people who earn more than £150,000 a year, announced in the Budget, could discourage charitable giving, according to the Institute of Fundraising.

The increase in higher-rate tax from its current level of 40 per cent will start in April 2010. The announcement overrides the 2008 Pre-Budget Report, which said the higher rate of tax would rise to 45 per cent from April 2011.

Lindsay Boswell, chief executive of the IoF, told Third Sector he was concerned that the extra financial pressures on high-level donors would result in them giving less money to charity.

He said the new tax rate would benefit charities only if Gift Aid was reformed to allow them to claim the extra tax back on donations. The Treasury confirmed that charities would still be able to claim back only the basic rate of tax on donations from higher-rate taxpayers, with the rest going to the donor.

Boswell said: "Some organisations may see a benefit if higher-rate donors donate the tax relief back to them. But we will push for changes to Gift Aid so that charities, rather than the donor, benefit from the full amount."

Gill Wootton, a fundraising consultant, also thought higher-rate taxpayers might feel "less philanthropic" in the short term, but predicted that they would continue to give at similar rates to the present in the longer term, once they had "got over the shock".

But Joe Saxton, co-founder of nfpSynergy, said the sector should see the new rate as a "huge opportunity" because many people on high incomes would use charitable giving as a mechanism to stop the Government getting their money.

"They will say: ‘If I can't have it, I would rather my favourite charity got it.'" He said the best charities would find a way to tap into this motivation.

Helen Donoghue, chief executive of the Charity Tax Group, also thought the ability to claim more tax back might encourage higher-rate donors to donate more.

Andrew de Mille, a fundraising consultant, did not think the new rate would make much difference. He said: "People don't give for tax breaks – they give to causes. They will give if they are going to give, and they won't if they aren't."

He said charities might benefit from forming a consortium to raise awareness of the tax breaks associated with giving. "But it needs to be sold to people in a way that is less in their face than it has been," he said.

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