But one piece has gone largely unnoticed: the limit on philanthropic giving. The measure would cap the tax relief for wealthy givers at 25% of their annual income, or £50,000, whichever is higher. It takes effect next year.
It’s similar to the Obama proposal, which would limit charitable deductions for high earners to 28% for couples with incomes of $250,000 or more or individuals with income of $200,000. The White House says limiting itemized deductions would shrink the deficit by $584 billion over 10 years.
The U.K. expects its measure (along with caps on business deductions) to result in $490 million in saved revenue.
“Giving shouldn’t mean you pay no tax,” according to the U.K. Treasury.
Yet charities say the plan would put a chill on philanthropic giving just as the U.K. government is trying to create a new culture of giving.
The government has waged a massive PR campaign in the past two years to get the British wealthy move toward the American culture of philanthropy. Last year, Prime Minister David Cameron released the “Giving White Paper” which aimed to “renew Britain’s culture of philanthropy by working with charities and businesses to support new ways for people to contribute which fit into busy modern lives.”
It included millions in government support for charity groups, research and committees.
The new tax, say many charity groups, rolls back the efforts. The new limits will be especially damaging to people who make a one-time gift of more than half of their wealth to a foundation — which the wealthy often do for estate planning.
“People should not have to pay tax on money they have given away for the public benefit,” said Chris Lane of the Charity Tax Group, quoted in the Third Sector magazine.
Do you think the new limits would reduce giving in the UK or U.S.?