Budget investment in the third sector

Philanthropists and the charities they support received encouragement regarding substantial donor legislation and a social investment bank but little progress with Gift Aid, in the Budget on Wednesday.

The Government will launch a new "informal consultation" into substantial donor legislation due to concerns that a variety of innocent transactions by donors to charities could be caught, and has raised the amount a donor has to give over a six-year period to be considered a substantial donor from £100,000 to £150,000. The consultation, with a small group of charities including Philanthropy UK, will develop new rules based around an anti-avoidance purpose test for substantial donors that could be legislated by 2010.

Jacob Rigg, head of policy at the Society of Trust and Estate Practitioners (STEP) said that it was clear that HM Treasury want to change the substantial donor rules to remove the burden on charities. “We look forward to a new test that will stop abuse while encouraging legitimate donations.”

Donations from non-domiciled taxpayers should soon be eligible for Gift Aid where the donor pays tax through the £30,000 Remittance Basis Charge, following the Finance Bill 2009, it was also announced.

The Budget did not announce any new measures to improve Gift Aid itself, although the Government has commissioned research into the effect of redirecting higher-rate relief from donors to charities.

John Low, chief executive of the Charities Aid Foundation (CAF), said that the existing direction of relief, to donors, combined with an increase in tax for people earning over £150,000 annually creates opportunities for charities to increase donations from these taxpayers. “If they don’t want to pay extra tax then it can be donated to charity and tax relief on 30% of the donation can be claimed back in the year end tax return,” he said.

Government plans for a social investment wholesale bank would also “Aim to increase the supply of investment in the third sector,” the Budget report said.  The Government will launch a consultation on the design and functions of the bank and the Office of the Third Sector will report back with proposals.

The budget also announced:

• A new £20m hardship fund to provide grant support to third sector organisations delivering front-line services
• A change to the enterprise investment scheme (EIS) that allows investors to carry back 20% tax relief on up to £500,000 of EIS investments rather than £50,000. One example of an EIS is the Triodos EIS Green Fund
• A target of 34% cut in carbon emissions by 2020
• A total of £1bn in commitments to combat climate change
• A consultation to bring Common Investment Funds and Common Deposit Funds more fully under FSA regulation while preserving their tax reliefs

The full budget is available on the HM Treasury website.