Although the Chancellor has announced what is a radical change to the taxation system he didn’t let us know what the impact of capping Gift Aid relief on donations would be. But we do have statistics about how important charitable giving is:
How much do we give to charity every year?
Surveys indicate that £11 billion is given to charity every year by the general public. This is probably an underestimate – it doesn’t include gifts from the really wealthy – these people tend not to take part in surveys. Beth Breeze and Coutts reckon there were an additional 80 gifts of £1m or more from individuals worth £782 million in 2009/10.
Why are large gifts so important?
NCVO and CAF estimate that 45% of the total amount given in 2009/10 was from 7% of all donors: and most of these are the higher rate taxpayers that could get snared by the new cap.
Importantly, smaller individual gifts could get snared up in the cap on tax relief: if cumulatively these exceed the limit then donors still won’t get the tax relief. So charities receiving smaller donations are likely to be impacted too.
How much is this going to cost charities?
We can’t yet answer this with certainty, if for no other reason that changes in tax rules lead to changes in the behaviour of tax payers, including philanthropists.
HMRC’s own figures show that higher rate tax payers are reclaiming £360 million on total gifts of £1.4 billion to charities. A proportion of this amount will not be affected by the cap – many higher rate taxpayers don’t give more than £50,000.
But some of this £1.4 billion is at risk. A good starting point is to look at the very largest gifts: philanthropists made 80 gifts of £1 million or more, worth £782 million, in 2009/10. And of these, 26 gifts to foundations of more than £1m were made, totalling just under £594m. These gifts will be tomorrow’s grants, creating a problem later on for small charities.
Are the wealthy likely to be discouraged by this change?
Every year, the Sunday Times asks the members of the ‘Rich List’, the 1000 most affluent people in Britain and Ireland, about their giving. They are sent documents which they complete to document the precise amount they give to charity. In 2011 the total amount given was £1.67 billion. This figure was a 33% drop (£818 million) from the previous year, prompting the Times to write “our findings challenge the expectation that wealthy philanthropists will plug the holes in charity funds being left by the withdrawal of central government support.”