I beg to move amendment No. 193, in page 74, leave out lines 27 to 32 and insert—
'(2) Any such election must be made by notice in writing to an officer of the Inland Revenue on or before the 31st January next following the end of the year of assessment to which the claim made by the donor relates.'.
With this we may take the following amendments: No. 192, in page 74, line 27, at end add
'or in any of the next succeeding six years of assessment.'.
No. 194, in page 74, line 34, leave out 'previous year' and insert
'year to which the election relates'.
No. 195, in page 74, line 39, leave out 'previous year of assessment' and insert
'year of assessment to which the election relates'.
The amendments are designed to extend the one-year roll-back for gift aid to a six-year roll-forward. That would give the gift aid system greater flexibility and encourage people to contribute more to charity. A change would also be made to give taxpayers more time to make a claim. They presently have until the end of the January following the end-of-year assessment to which the claim relates.
As the hon. Gentleman says, the amendments seek to extend the period available for donors to elect to have their donations made under gift aid. The clause allows donors to elect to have the donation treated as if made in the previous tax year. Higher-rate taxpayers can therefore claim their portion of the tax relief earlier. The amendments would allow the donation to be deemed to have been made in a later year, and any relief to be given against the tax liability of that later year.
In discussions on clause 86, the hon. Gentleman urged us to consider possible legislation from the point of view of the ordinary citizen. The operation of the relief would add considerable complexity for donors in identifying gift aid donations on which relief had not already been claimed, and in establishing when it would be most appropriate to claim unused relief.
In addition, the clause is intended to act as a prompt and incentive to higher-rate taxpayers to give to charity by making the relief available immediately. A reminder that they can do so will appear in the self-assessment returns from next year. By changing the deadline from the day of filing to a general one of 31 January, the amendment would reduce the incentive for immediate giving.
To allow a six-year carry-forward in the way proposed would add to the complications that I have suggested for donors and the Revenue, without necessarily increasing the sums given to charity. On that basis, I encourage the hon. Gentleman to withdraw the amendment, or my hon. Friends to reject it if he presses it.
The underlying point is simple. Let us take land. Many people may be rich in assets, especially land, but not in income. The one-year roll-back will give two years' income tax relief, but that is it. Therefore, if such people want to give a substantial asset well beyond their income, they will give a bit this year, a bit more next year, a bit more the year after and so on, so that they get their bite of relief every year in future. Would it not be better if they gave the lot now, so that charities gained, and then apportioned the income tax relief that they could not use this year and last year in future? The charity is the beneficiary, as it would be given the land earlier than it would otherwise. I cannot see that the amendment is especially complex, tax-wise.
The same principle applies to shares, although it is more likely to arise with land because so often owners of land may be asset rich but not especially income wealthy. People can give a bit at a time over several years, but the party that suffers from that is the charity recipient. I urge the Government to think a little more on the point.
I remind the hon. Gentleman that gift aid involves no gifts of land. It relates only to money. That type of debate may be more appropriate on new clause 12.
I thank the Economic Secretary; it has been a tiring week. The issue in relation to cash is probably less fundamental. I take it, therefore, that the Government's argument is that two years is a sufficient
period over which to spread it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
I beg to move amendment No. 196, in page 74, line 45, leave out '6th April 2003' and insert—
'the day on which this Act is passed.'.
Somewhat oddly, the gift aid tax roll-back provisions only apply from April 2003. We are suggesting that they should apply as soon as possible in order to get people to contribute to charity. Is there a good reason for postponing the start date by a year? What is the Government's rationale for not making the provisions applicable in the current tax year?
The hon. Gentleman is right—it is an attractive idea to introduce such an incentive for charitable giving earlier. However, it would not be possible in practical terms and that is why the measure starts next year. The claim for higher rate tax relief and in most cases the election to have the donation treated as being made in the previous year will be made through the self-assessment return. That means that the self-assessment form and accompanying guidance will need to be amended to take account of the measure. Since most self-assessment forms for 2001–02 have now been issued to taxpayers it is not a practical option to amend the return form and guidance for that year. I therefore encourage the hon. Gentleman, having made a powerful point, to withdraw the amendment.
With this it will be convenient to take the following:
New clause 12—Gift-aid: carry-forward of excess allowances—
(2) After subsection (6) of that section insert—
''(6A) For the purposes of the Income Tax Acts and the Taxation of Chargeable Claims Act 1992, if the basic rate limit for the year of assessment referred to in subsection (6) above, as increased by subsection (6)(a)(ii) above, exceeds the income and the capital gains of the donor which are chargeable at the starting rate, lower rate or basic rate for that year of assessment, the excess, in so far as it arises from the operation of subsection (6)(a)(ii), shall be carried forward to the next following year of assessment and the basic rate limit of that year shall be increased by the amount of the excess so carried forward, and if the basic rate limit of the next following year, as so increased, exceeds the income and capital gains of the donor which are chargeable at the starting rate, lower rate or basic rate for that year of assessment, the excess so arising for that year shall be carried forward and so on, until no excess remains.
(6B) In a case where an excess is carried forward under subsections (6A) above, the reference to profits or gains chargeable to income tax or capital gains tax in subsection (2)(i)(i) above shall include a reference to profits or gains chargeable to income tax and capital gains tax for any year of assessment to which such an excess is so carried forward.''
(3) Section 587B of the Taxes Act 1988 shall be amended as follows with effect from the year 2002–03.
(4) After subsection (2) of that section insert—
''(2A) In the case of a disposal by an individual, if the relief that may be claimed for the year of assessment referred to in subsection (2)(a)(i) above exceeds the total income of the individual for that year of assessment, the excess after making a claim for that year of assessment and the individual may make a claim for relief under this section for the amount of the excess in the next following year, and if the relief that may be claimed in the next following year, after making such a claim, exceeds the total income of the individual for that year of assessment, the excess shall be carried forward to the next following year and so on until no excess remains.
(2B) In the case of a disposal by an individual, if the relief that may be claimed for a given year of assessment under subsection (2) or (2A) above exceeds the total income of the individual for that year of assessment, the individual may make a claim for that year of assessment to treat the excess as increasing the annual exempt amount for that year for the purposes of charging capital gains tax under section 3(2) of the Taxation of Chargeable Gains Act 1992. To the extent of that relief is so given as a result of such a claim, the amount of any excess which may be carried forward to the next following year under subsection (2A) shall be reduced.''.'.
New clause 14—Gift Aid and non-taxpayers—
'—(1) Section 25 of the Finance Act 1990 (donations to charity by individuals) shall be amended in accordance with subsection (2) below.
(2) In subsection (8),
(a) after ''year of assessment'' there shall be inserted ''by more than £520''; and
(b) at the end there shall be added ''over £520''.
(3) This section shall be deemed to have effect for the year 2002–03 and subsequent years of assessment.'.
Several hon. Members rose—
The new clauses are designed to address some of the tax points to which I mis-referred a few minutes ago. The difficulty encountered in practice is that the income and gains, in the case of gift aid, may be insufficient for relief to be given for the donation that the donor would like to make. The donor may view the proposed gift as coming out of his capital resources. As such, it will often be the case that his income, or income and capital gains in the case of gift aid, for the year of the gift is much smaller than the value of the gift that he or she would like to make. That may put off or at least delay the proposed gift or result in it being split into tranches or scaled down.
Sometimes, on a company flotation, the major shareholder realises very large capital gains. Such a donor would be more prepared to make gifts of shares in a quoted company to a charity if he were able to obtain relief against the capital gains on the shares he sells along the lines of the income tax relief in section 587B. He will typically have a relatively small income and substantial capital in the year of flotation. I made the same point in relation to the ownership of land.
First, any relief not absorbed against the donor's total income and gains in the year of gift should be carried forward to the following year and treated as though it arose on a gift made in that year and so on,
until the relief is exhausted. Secondly, the donor should be allowed to make an election that any relief under section 587B not absorbed against the donor's total income in a given year should be allowed against his capital gain for that year.
I welcome clause 97, which will improve the operation of gift aid. I welcomed the introduction of gift aid by the Government two years ago, and I welcome their willingness continually to review its operation. The idea of gift aid is to boost donations to charities, which we want to be as generous as possible. We should also remember that giving to charity is an act of citizenship and a way for many people to participate in their community. At the same time as trying to increase the total amount of donations to charity, we should also ensure that the incentives that we provide through the operation of the tax system do not put off certain groups of people.
I act as patron to several local charities, including London and South East Direct Aid to Kosovo. Three years ago, I helped to set up the charity, which has as its patrons hon. Members on both sides of the House. It has been involved in helping to rebuild schools in Kosovo following the conflict there. We launched the charity in collaboration with the Newsquest local and regional newspaper group, which made the charity its chosen charity for six months. We received many small donations from Newsquest readers and, once that campaign came to an end, we continued to raise money through schools and churches. We raised more than £100,000 for schools in Kosovo, much of it in the form of small donations, but many of them would not qualify for tax relief through gift aid under current law.
As I aim to show, the situation can create difficulties not only for charities but for donors. There are at least two reasons why gifts to charities, such as London and South East Direct Aid to Kosovo, may not qualify for gift aid. First and most obvious, the donor who wishes to give a small amount to a charity may not be a taxpayer. Secondly, the donor may have been a taxpayer but ceased to pay tax in a later year, perhaps as a result of unemployment or retirement, or because of a fall in interest rates, if the donor's only income is from savings or investments. In those circumstances, the donor would no longer be eligible for gift aid relief. If anyone listening to our debate doubts whether such generosity exists on the part of citizens whose incomes are so low that they do not pay tax, they would do well to remember the parable of the widow's mite. However, we should also be aware of the need to avoid a tax liability arising as a result of the generosity of the widow in making her mite available to charity.
The Committee will be aware that charities have an obligation under current law to remind donors to amend previous declarations if they are subsequently not liable for tax. The failure to notify such a change in status could lead to a tax liability on the part of the donor, who would, by default, have allowed the charity to claim tax relief against a tax bill that he no longer had. In the case of the widow's mite, a
liability would arise if the widow had previously been a taxpayer and made a declaration.
I raised the issue of non-taxpayers when the gift aid scheme was introduced. The scheme was, however, so important and has proved so successful at increasing donations to charity, that I was anxious for it to get off the ground, and I obviously wanted to do nothing to hold it up. The point, however, is to improve the operation of the scheme. When it was debated in the Committee that considered the 2000 Finance Bill, I referred to a concern which the low incomes tax reform group had raised with me and several other Committee members. I cannot quote directly from the record, but I hope that I make a better job of paraphrasing myself than others do. I said that someone who stopped paying tax, but forgot to withdraw any gift aid declarations would be liable for tax on their gifts. How likely is it that even someone who is warned at the time—I mentioned the obligation on charities in that regard—will remember to withdraw a declaration several years after they made it, unless they are specifically reminded to do so? These days, we are very much encouraged to pay our mite, or perhaps more, by standing order, and the habit of paying money to charities in that way can go on for some time. How is a person to be reminded to change their declaration if their circumstances change?
The need for individuals to remember to amend gift aid declarations could be onerous, and there is a danger that it will lead to a tax liability in subsequent years. However, it could also be onerous and expensive for charities. Mr. Beighton acts as the treasurer for London and South East Direct Aid to Kosovo, and he is very much involved in his local church group. He writes every year to thank donors for their generosity and to remind them to inform him of any change in their liabilities. He wrote to me before this debate, saying that he had got a letter this year from a lady in her late 80s who was in a nursing home and who said that she had not paid tax last year. He could, therefore, adjust the church's claim, but unfortunately, as a result, the lady, who wanted to avoid any tax liability, cancelled her standing order and no longer donates money to help the church. There are, therefore, costs involved, and it takes time to remind people who donate to charities of their obligations. Such things can act as a disincentive and lead to the cessation of regular donations.
As is often the case with those who so generously give their time to charities, Mr. Beighton is involved with about 30 other charities in one way or another, although not specifically as their treasurer. He is not aware, however, that any of them write to donors to remind them of the need to review their liability to pay tax and to review subsequently their gift aid declarations if they have ceased to be liable for tax in that way.
The question, then, is what can we do about this? Clause 97 will not touch on the issue of non-taxpayers; nor will new clause 12 or new clause 14. I do not wish to push the point or, at this stage in the proceedings, resolve the issue, but this seems to be the right time to ask the question. The only fair solution would be to allow non-taxpayers to qualify for gift aid on their
gifts just as taxpayers do. There is an important point to be made about broadening the range of people who are eligible for incentives to give money, recognising that many people who make small donations may not be liable to tax.
The principle involved is no different from that behind tax credits, which the Government pay to taxpayers and non-taxpayers alike. If there is a fear of abuse, perhaps such donations should be subject to a maximum of £520 a year, or £10 a week. If Ministers continue to rule that out, should there not be a duty on charities to write to donors every so often, reminding them of their tax position? Most charities are in fairly regular contact with their warm donors—those who give regularly—so they could do so without that constituting too severe an imposition on them.
I hope that the Minister can confirm that those issues will be subject to continuous review. The gift aid scheme is excellent. I am delighted that the Government have introduced it and that it is working so well. It is encouraging more people to give to charity and is helping charities such as London and South East Direct Aid to Kosovo to get money. I have put on record our thanks to Newsquest for its help. We so often hear adverse commentary about the press, but this is an example of its doing very well. I say that in good faith; it was an intelligent way to support an important initiative. I ask the Government to keep the situation under review and would like to request an opportunity to meet Ministers and their officials to examine the issue of those people who give to charity but do not pay tax, in order to ensure that they receive a similar level of incentive—and that the charities that they support receive a similar level of reward—to those people who do pay tax. We want to encourage the widow's mite, but we do not want the widow's mite to generate a liability to pay tax in years to come.
I enjoyed the speech of the hon. Member for Wimbledon (Roger Casale). I recall the debate to which he referred in which he made a powerful case on a similar issue. My hon. Friends and I joined with him on that occasion. He was right to set out the position with respect to the widow's mite: gift aid does not apply to non-taxpayers and the state operates the rather worrying scheme that might catch a citizen who signs a gift aid declaration thinking that he is a taxpayer and that the charity should be able to reclaim the tax on his donation, but subsequently discovers that he is a non-taxpayer that year. That person, by definition on a very low income, would suffer a tax liability for having made a charitable donation. The hon. Gentleman's description of the problem was right, and the Government need to address it.
I disagreed with the hon. Gentleman, however, on one point of detail: new clause 14 goes a long way towards dealing with the problem that he spent several minutes describing. It is specifically targeted at dealing with that problem and drafted with the help of the Low Incomes Tax Reform Group. During a previous debate, Ministers suggested that the Inland Revenue would do its best, by making its literature clear and advising charities, to ensure that there would be few or
no cases of people inadvertently signing gift aid declarations. However, I am told that subsequent experience has shown that the complexity of gift aid is a real problem, not least in the pilot for tax help for older people that the Low Incomes Tax Reform Group has run with the encouragement of Treasury Ministers and the Inland Revenue.
The group told me that at least one client was told to sign the certificate on the ground that she and the charity would save tax, but that she had been a 10 per cent. taxpayer and should not have signed the form. The extension of the Government's policy to the 10 per cent. rate band will make the problem even worse. The problem is real, as are the concerns expressed by hon. Members.
Our concern is not only that an individual on a modest income might face an unexpected tax liability but that the measure will discourage the widow's mite. There will be press stories and anecdotes about people being punished for making donations, which will reduce the amount of giving. Of course, such a result would be exactly the reverse of the thrust of Government policy and would represent a serious error.
Those involved in the matter might be of the sort who would be scared of the Inland Revenue. Of course, all Committee members know how friendly and helpful the employees of that august body are. However, people such as elderly female pensioners may never have had to deal with the Inland Revenue, because their employers or spouses had dealt with it. Now that their spouses are deceased, they are suddenly faced with declaration and self-assessment forms and a letter in the post that tells them that they have made a mistake. One can imagine the anxiety that that would cause, over tiny amounts of money, to people who are simply trying to give money to charity. One begins to see the absurdity of the system that the Government have created, albeit with the best of intentions.
Treasury Ministers say that they are worried that the proposals will set a precedent and that the Treasury will effectively be giving tax subsidies to the donations, because no tax is being paid. In fact, the Treasury does just that in other areas of the tax system. With stakeholder pensions, the pension scheme member contributes a net amount and the Revenue tops it up by the basic rate of tax to the level of the earnings threshold, which is currently £3,600, whether or not the member is a basic rate taxpayer. That is one example of a tax subsidy that is analogous to the present proposals. The tax credit systems are also effectively tax subsidies to non-taxpayers or to people regardless of their tax position. In this Bill, the research and development tax credit is giving subsidy over and above the tax paid, because it is at 150 per cent. In other words, the Government have not identified a real problem, and if they continue to argue their case they should do so more convincingly.
New clause 14 would not get rid of the overall problem because it deliberately limits the amount that
can be given to £520 a year, which is £10 a week. That is probably as much as many such people are likely to give. It is difficult to imagine a case in which a non-taxpayer, about whom we are all concerned, would give more than that. The £520 limit will deal with the issue of fraud. Inland Revenue officials are worried that if they allow charities to get tax back from donations from non-taxpayers, there might be a risk of fraud. The new clause deliberately sets a limit that deals with that rather dubious argument.
It is time for the Government to address the issue. The poorest in our society should be allowed to give without the threat of harassment from the Inland Revenue. I hope that the Economic Secretary takes that simple point on board.
I just want to explore with the Economic Secretary why, if I understand the clause correctly, basic rate taxpayers do not figure in the ability to carry back unutilised tax payments in relation to the gift aid scheme. What happens when, for the sake of this discussion, a basic rate taxpayer in financial year 1 achieves an income that would take them into higher rate tax part of the way through financial year 2? They would not necessarily have received a self-assessment form for that year because, for the previous tax year, they would have been deemed to be, and in fact were, a basic rate taxpayer, and they would get their self-assessment form in financial year 3. If they have a cyclical pattern of income—very low one minute, very high the next—they might, if they had become an extremely generous taxpayer, have missed out on potential benefits under clause 97. I should be grateful if the Economic Secretary would tell me what happens to people who realise by financial year 3 that they are higher rate taxpayers and wish to make a substantial donation to use up the previous year's tax potential. Given that they would not have made an election, where would they stand?
Clause 97(1) states that those who will be affected by that
''may elect to be treated for the purposes of that section as if the gift were a qualifying donation made . . . in the previous year of assessment.''
A basic rate taxpayer pays tax and does not have to fill in a self-assessment form, but is still assessed to have a liability for tax. If it so happened that the person concerned had come into money in financial year 2 and, for whatever reason, wanted to make a substantial charitable donation, are they expressly forbidden, although they did not fill in a self-assessment tax form but are assessed to have a liability for tax, from utilising the facility in the clause? I should be grateful for the Economic Secretary's guidance on that, because some people have erratic earnings to which the examples that I have put before the Committee may well apply.
If I may, Mr. Gale, I shall go back to the subject of my hon. Friend's amendment. With the use of numbers I shall illustrate the impact that the amendment would have. If one were a taxpayer with a taxable income, which was not complicated by other factors, of £100,000, one would pay £38,388 tax in, for example, 2003. If one were to receive a gift making one's income £200,000, one's tax bill based on the
same income would go up to £44,000 because of the taxes that were withheld at the rate of 22 per cent. on the value of the gift of £200,000. Therefore, a taxpayer motivated by generosity who makes a substantial gift out of some assets that he has—someone who is asset rich and income poor, or relatively so—would actually lose out by about £9,500 as a consequence of his generosity.
People may be willing to give away their assets to the benefit of charities. I think that the prospect of becoming poorer as a consequence, by virtue of the way in which the tax system operates, would act as a disincentive. If such a person had an income of £300,000 rather than £100,000, he would make a tax saving of £36,000 under the current rules. If one is income rich and asset rich, a significant tax saving can be made by making a gift of £200,000 using gift aid. If one is income poor and asset rich, one would make a loss of about £9,500. My hon. Friend's amendment would give those people who are asset rich and income poor the opportunity to spread forward the value of their gift. Lo and behold, if one does that over two years and one's taxable income remains £100,000, the tax saving over three years amounts to £36,000, simply by the way in which the numbers work out. My hon. Friend's amendment would give—
Of course, it is new clause 12. That new clause would provide the opportunity for income poor, asset rich taxpayers to benefit from the same provision that the Finance Acts currently offer to income rich, asset rich taxpayers. On the grounds of equity, it might be appropriate to give taxpayers the benefits of the new clause. Moreover, it would stimulate giving from those people who benefit from safe flotations and the profits that can be made from the sale of shares. There would be an incentive for them to give more money to charity. The new clause is a sensible measure aimed at encouraging the civic mindedness to which the hon. Member for Wimbledon referred. We all want to see that in this country.
I wish briefly to pick up the point about the returns having to be done for gift aid, and the risk of people not paying tax. I would question the notion of millions and millions of bits of paper being filled out, particularly in relation to cash gifts. Personally, I find it maddening when one is given something and then keeps receiving bits of paper to return.
When we were discussing the matter two years' ago, there was a fairly sensible suggestion, which applied to cash gifts, that a rough and ready analysis could be done of the national proportion of tax paid, and a block tax credit could be given based on that proportion. Supposing that the average rate of tax paid on gifts to charity were 26 per cent., a central grossing up could be carried out, which would get rid of the need for all those pieces of paper. Anyway, I am sure that the poor Inland Revenue cannot check 15 million pieces of paper and pursue the discipline.
I had not expected such a rich debate, but I certainly welcome it because it draws attention to
the importance of the provision. In general terms, I am glad to say, there was support throughout the Committee for the principle if not the detail of the approach, and I welcome and pay tribute to that.
I shall take the points that have been made in order, and then deal with new clauses 12 and 14. My hon. Friend the Member for Wimbledon, who is a veteran of Finance Bills, brought his experience to bear. I welcome his support for our proposed development of gift aid. He spoke in parables and in practical terms about the experience and importance of charitable giving, not just because it benefits charities but because it is an important act of citizenship. That was a telling point. He asked me to confirm that the matters he raised would be subject to continuous review; I can do so. He also asked whether he could discuss the issue further with officials from the Treasury and the Revenue, and I confirm that I would be delighted to ensure that that happens. I shall ask the appropriate officials to contact him to proceed with those discussions.
The hon. Member for Kingston and Surbiton raised several points, which I shall deal with and then return to his general proposition. First, he said that 10 per cent. of taxpayers do not qualify for gift aid. They do qualify, on the condition that the donor pays enough tax to cover the tax reclaimed by the charity. It does not matter what rate the tax is paid at. Despite his general warm words and support for gift aid, the hon. Gentleman took the scheme to task for its alleged complexity. The Inland Revenue is doing a great deal to help charities understand the tax system and the benefits that it can bring to their income streams. The Giving Campaign is heavily funded and strongly supported by the Government; it runs a series of well-received workshops. The Inland Revenue also works with charities to ensure that they properly understand the range of reliefs that may be available to them and potential donors. I have material from the Giving Campaign, which I would be delighted to give the hon. Gentleman after the Committee.
The hon. Gentleman was also concerned about recovery from poor widows. In practice, where the Inland Revenue finds that a non-taxpayer's donation has been included in a gift aid claim from a charity, it invites the charity to make good the shortfall rather than pursuing the individual taxpayer. The hon. Gentleman cited the opinions of the low income tax group. We will continue to look at the evidence that it produces, to keep the impact of our measures under scrutiny and to keep our provisions under constant review.
The questions asked by the right hon. Member for Fylde covered two areas: concern for taxpayers who may one year be basic taxpayers but subsequently become higher rate taxpayers and, as an extension of that, taxpayers whose earnings are somewhat erratic year on year. I reassure him that the carry-back provision that we are discussing is available to all taxpayers; the self-assessment return is simply a convenient mechanism for claiming it. The Government and the Inland Revenue will make
available alternative routes to those who do not receive self-assessment returns.
The hon. Member for Fareham (Mr. Hoban) spoke in support of new clause 12, so perhaps he will allow me to deal with that. As the hon. Member for Arundel and South Downs explained, new clause 12 seeks to allow individuals to obtain higher rate relief on gift aid payments and relief on gifts of shares or real property to charity in later tax years if they cannot get the maximum relief in the year in which they make their payments or gift. Such a provision could lead to complications for donors. The hon. Gentleman may be a sophisticated tax player himself, but we should bear in mind the words of my hon. Friend the Member for Wimbledon when he urged us not to put people off making donations. New clause 12 would introduce complications in establishing tax liability from year to year, as additional relief for new donations augmented unused relief from earlier years. As a result of those complications, we may fall into the trap that my hon. Friend warned us against. It would be an unnecessary burden for the large numbers of gift aid donors who are not liable at higher rates. They would have to calculate the amount of unused relief every year, even though they might never be in a position to make the higher rate tax-paying band and use the accumulated relief that they were gathering. They would almost certainly have to make annual tax returns to the Inland Revenue, whereas at the moment they do not have to do so.
The present reliefs for gifts to charity are generous, as one or two Members acknowledged. Individuals can eliminate their entire higher rate liability through cash donations under gift aid or their entire income tax liability for the year with a gift of shares or real property. There is no evidence that the lack of a carry-forward facility, of the type put forward in new clause 12, is inhibiting the success of gift aid. In fact, the amount of tax repaid to charities by the Inland Revenue under gift aid is increasing year on year.
New clause 12 would also allow unused relief for gifts of shares or real property to be set against capital gains tax liability for the year. Such gifts have already enjoyed full relief from capital gains tax on the gift itself. We see no reason to allow further relief against capital gains liability on unconnected disposals.
On new clause 14, under the current gift aid provisions donations are treated as having been made after the deduction of income tax at basic rate. The charity is exempt from tax on that income and is therefore entitled to claim the basic rate tax from the Inland Revenue. If the donor has not paid sufficient income or capital gains tax to cover the amount of basic rate tax that the charity has reclaimed, the donor is liable to be assessed on the shortfall, although I explained how the Inland Revenue deals in practice with the problem of the poor widow, which the hon. Member for Kingston and Surbiton mentioned earlier. The changes proposed by the clause would allow only that shortfall to be assessed where it amounted to more than £520 in any year of assessment. That would mean that someone who had paid no tax in a year
could make donations of over £1,800 per year under gift aid. The charity would still be able to reclaim the equivalent of basic rate tax on the grossed up value of the donations. However, we must consider a consequence of that. The amounts that the charity reclaimed would not be tax repaid, but would in effect be a grant from the Exchequer, although the hon. Member for Kingston and Surbiton tried to refer to them as a tax subsidy.
Gift aid is only one of the ways in which the Government support the charity sector. Another important form of support is targeted grants or subsidies for particular sectors. Changing gift aid to a grant scheme would lose its focus and mean that Government would have to revisit other spending priorities within the sector. There is no good reason to extend gift aid further through the new clause.
Could the Minister undertake to do some work in his Department on the administrative costs to the Inland Revenue that would result from the auditing of charities under the provisions? If the cost is significant, might not turning gift aid into a partial grant scheme actually save the Government money?
The Government and the Revenue in particular work constantly on such costs. That work is going on. As I said, present reliefs in the system provide significant incentives for giving to charity. We are not persuaded that the potential additional incentive of a carry-forward facility is needed, or that the extension of gift aid to allow non-taxpayers to make donations is required. On that basis, I invite the Committee to reject both new clauses if they are not withdrawn.
I was not convinced by the Minister's response to new clause 12. Adding land has become more relevant. Where gift aid is in equated shares, it would be veritably straightforward to work out how much to give year by year in order to obtain the full income tax deductions. Land and property can be broken down into different parcels, but it is much more legally complex to do so. Clearly, people are not going to give in any one year more than they will receive from income tax offset. Not allowing a carry forward—always less generous than a carry back—will inhibit people who are asset rich but not so rich in income from giving more valuable blocks at one time.
I encountered a specific case of someone who wanted to donate to the London Business School the premises where a venture capital laboratory operated. Both needed the incentive to give property and the carry forward because of the size and value of the gift. If the Government do not address the point in some other way, they will not meet their own objectives. At the end of the day, if nothing is done, people who are asset rich but not so rich in income will not give as much as they would if, as in the States, they could use in one way or the other a full income tax offset.
I was pleased with much of the Minister's reply, particularly the fact that he is open to considering the matter again in future. When he does examine it in more detail, he may well find that the amount of money given by non-taxpayers will be small. Despite the issue of this turning into a partial
tax subsidy, the amounts are absolutely tiny. If the Government were really worried, they could try to limit the provisions either as I propose in new clause 14 or in a slightly lesser way. That might prevent the danger of an explosion in Exchequer costs.
I am grateful for the Minister's response. I hope that the work will be carried out so that we can deal with a future Finance Bill in a way that meets all the
Treasury's concerns while also meeting those of many hon. Members on both sides of the Committee.
Question put and agreed to.
Clause 97 ordered to stand part of the Bill.
Further consideration adjourned.—[Angela Smith.]
Adjourned accordingly at fourteen minutes past Five o'clock till Tuesday 18 June at half-past Ten o'clock.