Will the 50% tax rate attract or deter rich donors?

Inevitably – it being the day after the Budget – we’re now fielding calls from journalists asking what difference it all makes to donors. One common question is: “will the new 50% tax rate attract or deter rich people from making donations?”.

The reason it could be construed as attractive is because all donations are eligible for tax relief, so the more tax you pay the ‘cheaper’ it becomes to give. A non-tax payer has to spend £1 to give £1, a standard rate payer only needs to give 80p for their chosen charity to receive £1 (the donation + the 20% tax relief), and the new highest rate tax payers will only have to pay 50p to give £1. In effect, the public purse will match-fund the donations of the richest.

The reason it could be construed as a deterrent is that someone paying 50p in the pound on tax, may feel they’ve contributed enough to the common good and be less willing to consider giving away a portion of what they have left.

The research says that neither outcome is inevitable, because tax relief is not a particularly significant factor in people’s decision to give, though it can affect how much they give. Hearing that it is now 5% cheaper to make a donation, will not turn a scrooge into Mother Theresa overnight. But when donors understand the tax breaks that are on offer, it can encourage them to raise the value of their gift. Someone planning to donate a few hundred thousand pounds might be tempted to go as high as £500k once they understand it could turn into £1m with a flick of the chancellor’s wand.

But the key finding from the research is that people give in order to make something that they think is  important happen, to get satisfaction and enjoyment, to bring meaning and significance to their life, and to create a lasting impact and legacy that they and their loved ones can be proud of. So any fundraiser thinking that 5% here or there is going to suddenly attract or repel hordes of donors is probably mistaken – but offering a vision that is 5% more exciting, or promising 5% better outcomes, might well do the trick.

Leave a Reply