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Sunday, 15 April 2012

Give me a break

There seems to be a lot of hot air in the media about tax relief for charitable donations, notably a letter to the Telegraph with 40 signatories. But take a closer look and you will find that most of them are self-proclaimed philanthropists acting on behalf of their own family trusts. I have no doubt that they are all generous and well intentioned but they don't seem to fit the general description of charity donors. To explain: imagine a charity donor earning more than the average, perhaps £40,000 a year but with little other liquid assets. This donor deciodes to give donations of £2,000 a year to various charities, and this genuinely reduces the amount of disposable income that he has to live on. It doesn't seem unreasonable to reduce the amount of ioncome on which he is assessed by £2,000. Now consider the situation of a very wealthy family that owns perhaps £100 million of income producing assets quite apart from the assets that they rely on to live (houses, cars, grouse moors i.e. the basic necessities). At the beginning of the year, the family invests its £100 million and gets a measly return for the year of £5 million, which it decides to donate to a charity, namely its own family trust. Now, there are many ways that you can look at this, but it seems to me just as reasonable to treat that donation of £5 million as being made out of the family's accumulated wealth of [£100m + £5m] than just out of the £5m income, so why should anyone expect it to qualify for tax relief in full against income? In summary, since every one is guaranteed 100% relief for charitable donations up to £50,000, tapering down to 25% relief at the first £200,000 and 25% thereafter, it doesn't seem unreasonable to me for the government to treat donations above £50,000 as being paid out of capital not income.

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