There are a lot of consultations taking place at the moment into charity tax reliefs: inheritance tax relief, VAT relief on shared services, relief on gifts of pre-eminent works of art.
There seems to be a common thread among all of them. In all cases, sector experts think the proposals are rubbish.
Inheritance tax relief has been derided as “complex, capricious and counterproductive” by Martyn Gowar of the Chartered Institute of Taxation.
Gifts of art was described as “better than nothing, but not much,” by specialist charity lawyer Simon Weil, of Bircham Dyson Bell. It has been presented as a charity relief, he says, but actually only covers gifts to the nation.
Meanwhile Ian Theodoreson, chair of the Charity Finance Directors’ Group, said that he “died a little inside” on hearing of how the shared services provision would work.
There are a number of factors for this lack of enthusiasm on the sector’s part.
One is that the sheer complexity of tax, particularly EU law has made it difficult for the government to do exactly what it wants. The government has been forced to engage in convoluted fiscal legerdemain in order to avoid breaking principles of fairness and impartiality. The proposals for shared services, in particular, have grown in complexity until they look like Winston Churchill’s description of Russia: a riddle wrapped in a mystery inside an enigma.
Another is the fact that some of this has been put together in a hurry. The government announced a lot of new reliefs in the last budget, and it’s been keen to get them into law quickly. The coalition administration has adopted a “shoot first, ask questions later” approach when implementing many new ideas, and sometimes they haven’t come out quite right on the first attempt.
A third reason, I think, is the nature of expectation. Whenever a new relief is announced, the sector immediately imagines one thing, while civil servants are simultaneously imagining something quite different. The sector wants a laissez-faire approach that allows them to get on with things – as, to an extent, do ministers – while HMRC wants to avoid any possibility of fraud.
I also think some sector reactions to the first proposal, for inheritance tax relief, has been a little harsh.
It will encourage donations from some wealthy folk. It will get a lot of tax advisors talking about legacies. And it is certainly substantially better than the existing relief, which is to say, nothing.
The proposals for gifts of work of art, however, may not even be better than nothing. I suspect I would prefer not to have this relief at all, because having something this restrictive in place already will set a bad precedent, which will make it more difficult to campaign for reliefs that actually work.