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Baroness Noakes: My Lords, I start by declaring my rather modest interest, compared with those of noble Lords who have spoken before me: I am a director of the English National Opera, which would potentially be one of the beneficiaries of charitable remainder trusts, were they to be introduced in this country. It has
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been a privilege to hear my noble and learned friend Lord Lyell of Markyate bring this issue to your Lordships' House today. It is clear that he has a real commitment to the charity sector and I know that that sector will be grateful that my noble and learned friend has secured this debate.
We have long supported the charity sector on these Benches. Of course I claim no monopoly on this, but we have a vision of the sector based on more power and freedom for it than is currently the case. We do not want charities to be beholden to the Government through complex and restrictive contracts. We want them to have more freedom, less interference and, as important, less bureaucracy. Our vision for the charity sector is not just about how government interfaces with that sectorwe want the sector to be genuinely free, and that requires, in most cases, a higher degree of economic independence than currently exists. My noble and learned friend's idea for a new method of facilitating individual giving through these trusts is a major contribution to the debate.
The idea comes from the US, which has a much stronger tradition of personal charitable giving, on the back of more extensive tax reliefs, as well as a lower marginal tax rate. In this country we already have a number of tax reliefs in our system, but we also know that they are not fully utilised. I understand that only about 30 per cent of giving in the UK is tax-effective. There must be more that the charity sector can do to increase its income by maximising the reliefs that are already available.
My noble and learned friend's ideas are particularly interesting because in the US this appears to appeal not only to the rich, as he has pointed out, but to those of much more moderate means. In this country, around 60 per cent of personal giving is concentrated among about 5 per cent of donors. If a way were found to spread significant giving across a larger number of donors, the benefit to charities' finances is obvious.
I know that my noble and learned friend will not expect me to say that charitable remainder trusts will be a part of the policy of our party at the next election. It would be lovely to say that we will accommodate all such good ideas, but the plain fact is that our first priority on taking office will be to ensure the stability of our public finances. Only when we have achieved that can we move on.
I am sure that my noble and learned friend is aware that we have embarked on a wide-ranging set of policy reviews, one of which is our tax commission, chaired by my noble friend Lord Forsyth of Drumlean. I hope that my noble and learned friend Lord Lyell will ensure that today's debate is drawn to the attention of my noble friend and his commission. Our tax commission is charged in particular with looking at ways of simplifying our tax system. One of the drawbacks of charitable remainder trusts is that they could further complicate our tax code, which has already been massively overcomplicated by eight years of finance Acts.
The Minister has told us several times that complexity in the tax code is a response to avoidance. The plain fact is that tax reliefs and incentives are
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sometimes only a hair's breadth away from avoidance. The noble Lord, Lord Best, outlined some of the possibilities that may be worrying people on that score. Charitable remainder trusts may involve not only complex legislation in introducing them, but another raft of anti-avoidance measures to ensure that abuse does not follow. That is not the general direction in which we will want to go when we have custody of the tax system again.
For all those caveats, my noble and learned friend Lord Lyell has put an important issue of support for charitable giving on the table. We know that the Government have been looking at this for some time, yet we have heard no proper response from them. I hope that the Minister will tonight give us a straightforward account of the Government's views.
Lord McKenzie of Luton: My Lords, I add my welcome to the opportunity to debate this matter this evening and to thank the noble and learned Lord, Lord Lyell, for providing it. In doing so, I respectfully remind your Lordships' House that primacy on issues of taxation rests with the other place. That is ultimately where these matters will have to be settled.
The Treasury and HMRC have had extensive discussions with voluntary sector representatives and professional advisers who have advocated the introduction of tax relief for gifts made through charitable remainder trusts. This Government are committed to a strong voluntary and community sector. Encouraging individuals to give to charity is just one aspect of that commitment and we have a number of measures in place to support charitable giving.
Since the introduction of the Getting Britain Giving package in 2000, the range of tax reliefs for giving is broad and generous. Gift aid was improved in 2000 to apply to donations of money, whatever the amount. Individuals who are UK taxpayers can authorise the charity to reclaim income tax at the basic rate on their donations. If the donor is a higher-rate taxpayer, the donor can reclaim the remaining tax on his next self-assessment return. The growth in the use of gift aid has made a real difference to charities. In 200001, £222 million was repaid to charities in gift aid donations. In 200405, this figure had grown to £625 million. Higher-rate taxpayers reclaimed £150 million in 200405 on their gift aid donations.
Payroll giving enables employees to give through the payroll and to get tax relief up front. In 200405, £83 million was given in this way, and many charities value the regular income stream that payroll giving provides. Since 2000, income tax and corporation tax relief has been available for gifts of quoted shares and securities and, in 2002, relief for gifts of land and buildings was added. Gifts to charity of money or assets are exempt from capital gains tax and inheritance tax. With such a range of reliefs, is there a need for any more?
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There is considerable scope for the existing reliefs to be more widely used. Research for HMRC demonstrated a low level of awareness of the existing tax reliefs. The Charities Aid Foundation said that only around a third of donations are made through gift aid and that this could be increased to 60 per cent. The noble Baroness, Lady Noakes, made that point. Payroll giving is offered by only around 2 per cent of employers.
This Government are playing their part in encouraging the use of the tax reliefs for giving. We provided most of the funding for the Giving Campaign, which raised awareness among charities of the reliefs and provided toolkits to support them. In January 2005, the Home Office launched a scheme to encourage small and medium-sized employers which have fewer than 500 staff to offer payroll giving. So far, the number of SMEs offering payroll giving has increased from 901 to more than 2,100.
With so much more to achieve through the current reliefs, we need to consider very carefully whether any new relief would bring about additional giving and whether that additional giving would outweigh the costs involved. Charitable remainder trusts are complex vehicles for most donors and charities to understand, and it is not clear that there is a market for such a method of giving in the UK.
Another question we must ask is how important tax relief is in encouraging charitable giving. The decision to give to charity is influenced by all sorts of factors. Tax relief is just one and, for many individuals, it is not decisive. Motivation for giving is influenced by a range of factors, such as commitment to the cause or religious beliefs. Research by the National Council for Voluntary Organisations and the Charities Aid Foundation tells us that gender and regional variations in levels of giving exist. Research for HMRC shows that, where donors know about the reliefs, those reliefs do not influence greatly the decision whether to give or how much to give.
So would a relief for giving through charitable remainder trusts make a difference? Those who are campaigning in support of the proposal cite the success of these vehicles in the US. The noble Lords, Lord May and Lord Neill, spoke about that matter. We need to be sure that the evidence shows that CRTs have boosted giving by the wealthy rather than just facilitated it. We know that reducing tax liabilitiesestate duty in the USis a prime motive, as witnessed by the marketing material. The culture of giving in this country and the tax system are quite different and we need to be careful not to draw too many parallels. I understand that a charitable remainder trust may give a charity a degree of certainty that a legacy does notwills are often challenged or changedbut how many people will be prepared to make an irrevocable gift into such a trust and would these be the very people who would leave legacies to charity in their wills anyway?
These are complex vehicles that might bring additional costs to donors, charities and HMRC. The noble Baroness, Lady Noakes, made reference to that.
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I took the opportunity to look at the website of the Institute for Philanthropy and went through the opinion provided by James Kessler QC on what the outline of a trust might look like and the sort of issues that cropped up which would have to be addressed. Would it be directed only at individuals? Were there any restrictions on residents or domiciles? Who specifies the charities? How long could the non-charitable period last? What about the income that arises to the trust? Would there be a difference in providing an income that would come out ordinarily from what the trust generated or an annuity? What happened if the arrangement was for higher-than-market yieldswould that be permitted?
The inheritance tax relief would have to cater for different circumstances, whether it was just the settlor who had the interest in possession or somebody else. What gifts should get income tax relief? Would it just be cash, land, shares, securities or works of art? How is the income tax relief to be calculated? Is there to be a minimum level of the reversionary interest? How can the income tax relief be used? Can it be carried forward, back, set against gains or just income? What about the anti-avoidance rules that are already in place in relation to gifts of qualifying investments? There are more measures. I do not say that technically these could not be dealt with, but it would clearly be a complex process.
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