Those with an ear attuned to voluntary sector issues cannot have failed to have noticed the increased emphasis on philanthropy in government discourse as well as in the press. From the launch of a philanthropy strategy to the giving focus in the March budget and the green and white papers simply titled Giving, it is safe to say that there is a new vigour to government interest in philanthropy.
The Philanthropy Review, a select group of leaders from the philanthropy, business and charitable sectors itself established at the close of 2010, has during the past six months sought to investigate and advocate for practical steps to build a more robust and generous giving culture in the UK. They recently released their report, A call to action, setting out a series of recommendations to spur giving and to raise giving values.
The Philanthropy Review itself is excellent news for the sector; focusing attention on how giving can be fostered must be welcomed at a time when fiscal austerity is starting to cut deeply in the voluntary sector. The recommendations may not be universally welcomed (nor implemented by government), but they certainly are a call to action and contain some interesting key proposals.
Full gift deduction as an alternative to Gift Aid
The most controversial recommendation is that an option for full donor tax relief on charitable donations be introduced. This would enable donors to opt for a full personal tax credit as an alternative to the existing relief scheme for cash donations (Gift Aid), which effectively splits the tax relief between the donor and the recipient charity.
Where this option is exercised by donors already giving, there is a good argument that money would essentially be siphoned away from charities. However, if this option incentivises donors who would not otherwise give, or who would not give as much, the net effect for charities could be very positive indeed. One possible benefit to this proposal is that a full donor relief option may well help to encourage those who advise donors to break the giving taboo and start conversations with their clients about giving early, and as a matter of course, with a positive impact on giving numbers resulting.
Relief on small cash donations
The March budget announced that charities would be able in certain circumstances to receive Gift Aid - style relief on a maximum of £5,000 of donations not supported by the Gift Aid declarations usually required the charity to reclaim the notional tax paid. The Review proposes this cap be raised to £50,000 by 2015 and ultimately lifted altogether so that charities could claim for the entire amount they receive in.
Collecting charities may welcome this recommendation particularly if their collection income is well above the £5,000 cap. They may see this as simply allowing them to get the same 'uplift' as is available on cash donations supported by a declaration and so levelling the playing field.
However, the purpose of a Gift Aid declaration is not simply to inconvenience the charity and the donor. It is to ensure that the donor has paid sufficient UK tax to cover the reclaim the charity will seek from HMRC. Without this, government would be paying out even where the donor has not paid any UK tax, for example when overseas visitors donate.
Whilst a higher cap to this relief would be attractive for charities with significant collections income, it is a revolutionary departure from the way the UK currently relieves donations. Under the Gift Aid scheme donors choose to direct the tax they have paid on their hard-earned income to charitable projects in which they believe. The link between the notional tax the donor has paid and the right for a charity to claim some or all of it back from government is what distinguishes the UK charitable relief from a general government subsidy. A move away from this may even act as a disincentive to giving.
Lifetime legacies
The review adds to the growing number of voices calling for the introduction of tax-efficient lifetime legacies, or charitable remainder trusts. This mainstay of US fundraising could encourage those mass-affluent donors who want to give but may need some lifetime income on their delayed capital donation, and may help grow endowments as the government so desires. Careful planning around the potential for fraud will be imperative, but where all are agreed that the UK needs more giving (by value and by number), proper consultation into this promising mechanism should as a minimum be pursued.
Charity bank accounts
The review's recommendation in relation to integrated giving accounts run by banks is both interesting and timely. Donor advised funds run by banks for their customers are an established and popular giving platform elsewhere but have not taken off in the UK for a variety of reasons. It is not just the making of a commercial case to banks and building societies. The government will need to bring HMRC and the Charity Commission on board fully and this should go hand in hand with encouraging the development of banks' own philanthropy advice offerings to bring giving into the personal finance discussion more often.
It will be fascinating to see how discussion develops out of the recommendations and the extent to which the review may help focus the government's aim to encourage UK giving.
Alana Lowe-Petraske is an associate in the Charities & Philanthropy team at international law firm Withers LLP
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