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Budget headlines for charities

  • Reforms allowing charities to claim Gift Aid on donations totalling up to £5,000 per charity without any paperwork – Osborne claimed this would help 100,000 charities to save £240m
  • Implementing an online claim system for tax relief by 2013
  • A 10% tax break on inheritance tax for people whose wills include a 10% legacy to charity – Osborne said he wanted to make “giving 10% of your legacy to charity the new norm”
  • The retention of community investment tax relief, which allows investors in community development finance institutions to claim back up to 25% of their investment in tax relief over five years
  • An announcement that volunteer drivers will be able to claim a higher level of expenses to cover their costs
  • Any tax refund due to an individual can be directed to any charity of their choosing through their self assessment tax return.

So, what do the key changes mean for charities?

From April 2012, estate beneficiaries will pay the lower rate of 36% instead of the usual 40% Inheritance Tax rate levied on estates above £325,000.00. This will apply if at least 10% of the estate has been left to charity.

The Chancellor’s intention is to encourage charitable giving, whilst making sure that beneficiaries are not left to suffer as a result.

However, families now face a decision of whether to leave the donations in a Will or benefit from Gift Aid donations during their lifetimes. Higher rate tax payers can benefit from this by clawing back a further 20% (30% for those on the highest rate) on donations.

The Gift Aid Simplification survey conducted by CFDG and five other organisations last year revealed that 43.2% of respondents felt they do not maximise potential income through Gift Aid to which they are entitled. The Chancellor announced that claims on small donations, up to £5000 per year, per charity, would be permitted online, without the paper form filling. The Government estimates this to be worth around £240 million to the sector. The chancellor is also increasing the Gift Aid benefit limit from £500 to £2,500 from next month to allow charities to give “thank you” gifts to significant donors.

Commenting on these changes, Lee Grant, Head of Membership Communities, Institute of Fundraising, said:

‘It’s great that charities will directly benefit from today’s budget. The 2013 online system of processing Gift Aid is well overdue and will save both time and money for charities claiming Gift Aid relief.

‘Allowing Gift Aid on small donations is a welcome gift for charities, allowing a further £1,250 to be claimed by charities each year.’

A further innovation announced today is that the full benefit of any tax refund due to an individual can be directed to any charity of their choosing through their self assessment tax return.

Simon Hebditch, CAF’s Policy Director commented: “Although it is too early to quantify the full potential of such a measure, there is clearly great scope for donors to make significant charitable contributions in this way. Even more pleasing, is that the Inland Revenue will actively work to raise awareness of this new facility by advertising it in the notes that accompany the self assessment tax returns.”

Whilst some are disappointed not to have seen the introduction of introduction of Lifetime Legacies, which have generated over $107bn (£65bn) in the US, and would do more to encourage a link between donors and the charities they support, there has been universal support for what the Chancellor described as “the most radical and most generous reforms to charitable giving for more than 20 years.”

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