by Noga Zivan, D. Phil.
Last week’s emergency budget left many unanswered questions. Housing benefit is down, but so is Corporation Tax. National Insurance raises have been canceled, but VAT has been raised. So where does it all leave us?
A £1,000 rise in the threshold for income tax will take 880,000 people out of the tax system, making their donations ineligible for gift aid. At the opposite end of the scale, the maintenance of the 50% rate of income tax for the highest earners will act as an extra incentive for them to donate. Put simply, after the charity and the individual have both claimed back the taxes on the donation, only 50% of the money donated has actually come out of the donor’s pocket. This raises interesting questions for some Jewish charities, in particular synagogal bodies whose membership fees are counted as charitable donations, since it leave the highest earning members paying the lowest fees post-tax.
The 10% increase in Capital Gains Tax, from 18% to 28% for higher rate payers, may lead to an increase in non-cash donations. Since assets sold by charities are exempt from CGT, 28% extra value can be donated simply by donating the asset itself, rather than the proceeds of its sale. Many charities, used to handing assets only as part of legacy proceedings, will now need to think seriously about their guidelines on the sale or maintenance of assets, which will vary depending upon their trustees’ appetite for risk.
In a move designed to encourage companies to locate in the UK, the chancellor announced a year-on-year reduction of 1% in Corporation Tax, the tax payable upon company profits, for four years, bringing the UK’s rate of Corporation Tax to 24%, the lowest in the G20 group of countries. This move will benefit donors whose main income is derived from company dividends, rather than salaries.
Also impacting directly upon charities, Jewish and non-Jewish, is the planned rise in VAT from its current 17.5% to 20% in January 2011. This is projected to cost the third sector as a whole an extra £140m annually, a cost which the cancellation of some projected national insurance increases will not offset.
In a move which is bound to please those charities working for Tikkun Olam, the Department for International Development will be one of only two government Departments not expected to reduce their income by an average of 25% (the other being the Department of Health).
For many of our major donors, the budget speech caused a sigh of (relative) relief, with the pre-budget spin having raised fears of much worse. In so far as it has bolstered donor confidence in the run-up to the crucial autumn fund-raising season, George Osborne’s budget has probably done the majority of Jewish charities in the UK a favour.
Noga Zivan, D. Phil., is Director of Fundraising at British ORT.