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Concerns over Charity Tax Relief. 13.04.12

The BBC understands that Business Secretary Vince Cable and other ministers at the Department for Culture are lobbying the Treasury to amend plans to cap tax relief on charity donations and its potential effect on universities.

Under current rules higher rate taxpayers can donate unlimited amounts of money to charity, and offset it against their tax bill to effectively bring the amount of tax they pay down to zero. Although they are not benefiting financially, they choose where their money is spent - unlike most taxpayers, whose cash goes to the government who decide how to spend it.

In the march Budget, Chancellor George Osborne said that, from 2013, previously uncapped tax reliefs would be capped at £50,000 or 25% of a person's income, whichever was higher.

Charities have been annoyed by suggestions that charitable giving is a loophole being exploited by tax avoiders - and point out that wealthy benefactors give away far more than they ever get back in tax relief.

The chair of Arts Council England, Dame Liz Forgan, said the announcement had come "out of the blue" and threatened to derail charities' efforts to increase private donations. She told BBC Radio 4: "We think at least £80m worth of regular donations to some of our largest organisations could well be at risk."

Business Secretary Vince Cable's spokesman told the BBC that the Lib Dem cabinet minister "fully supports the need to clamp down on abusive tax avoidance but this should be separated from genuine charitable giving".

A series of Conservative MPs have also questioned the policy including Backbencher Zac Goldsmith, a multi-millionaire environmentalist who said: "The plans have to be amended. They make no sense and will massively harm charities."

Treasury Minister Mr Gauke said: "We are not saying that every charitable donation is somehow an abuse and that all charities are somehow a tax dodge - that's not the case.

What are the changes.

From April 2013 there will be a limit on the amount of income tax relief individuals can claim.
At the moment there is no limit so it is possible to donate enough money to charity to effectively bring a tax bill down to zero.

Although the donor does not personally profit from the arrangement, it means they are choosing where their money is spent - unlike normal taxpayers.

The cap will be set at £50,000 in any one year, or at 25% of an individual's income - whichever is greater.

That means an individual with an income of £4m could still give £1m to charity and get full tax relief for that £1m.

If you have any questions or concerns about Tax Planning and compliance, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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