Gift aid on political donations

15/03/2011

Following my first blog, a friend mentioned that he had heard that gifts to political parties might obtain the benefit of gift aid. He was clearly not too impressed with this idea.

How Gift Aid works
Gift Aid works as follows: a person gives a cash donation to a charity and at the same time makes a Gift Aid Declaration, and, provided he or she has paid sufficient income tax, the charity is able to reclaim the basic rate tax on the gift from HM Revenue & Customs.

At present, this means that a gift of £100 to a charity with Gift Aid is worth £128 to the charity, although, with the end of transitional relief on 5 April, its value to the charity will soon decrease to £125.

If the donor is a higher rate tax payer, the donor is able to reclaim the difference between the basic rate and higher rate tax for him or herself. This can be a considerable incentive to higher rate tax payers to make charitable donations.

Gifts to charity also benefit from an Inheritance Tax exemption, and, where the gift consists of assets other than cash, a Capital Gains Tax exemption may also be available.

Reliefs for gifts to political parties
Although gifts to political parties already benefit from an Inheritance Tax exemption, provided the party which receives the gift has at least two members elected to the Commons or at least one member elected to the Commons and at least 150,000 votes at the last election, there is no Gift Aid available for cash donations to political parties.

This is because, while a charity can carry out campaigning and political activity provided it is in furtherance of its (non-political) charitable objects, a charity cannot have purely political objects.

In February, the co-Chairman of the Conservative Party, Lord Feldman of Elstree suggested to the Committee on Standards in Public Life that this situation should be changed. It is not the first time the suggestion has been made. At the time of the Hayden Phillips Report on party political funding in 2007, Labour was in favour of gift aid being available on political donations.

More recently, in 2009, the Liberal Democrat Lord Goodhart proposed an amendment to the Political Parties and Elections Bill which would allow a political party to reclaim up to £500 of basic rate tax on any donation by a tax payer.

Then, the proposed amendment was rejected, on the grounds that there was no public appetite for tax relief to be available on political donations, especially when politicians were held in such low esteem. It was noted that charities are viewed as deserving of special treatment by the general public, and political parties are not.

So, is the time now right for change?
I haven’t noticed any significant shift in public opinion, and my friend’s immediate response suggests that my perception may not be completely erroneous.

One of the arguments for making Gift Aid available on political donations put forward by Lord Feldman was that it would ‘decontaminate’ the issue of donations to political parties, and potentially increase the donor base for the parties. I think he is confused on this issue.

Simply giving political parties some of the same benefits that charities receive will not revive the fortunes of the political parties, in terms of their finances or their reputations. Charities have had to work hard for many years to achieve the public’s trust and confidence.

Given the current level of public trust in political parties, I can’t even begin to guess how long it might take for the political parties to achieve the same feat.

And don’t even get me started on the potential incongruity of charities being barred from engaging in any party political activity, and political parties receiving reliefs presently reserved for charities…