Mr. Flight: 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.
John Healey: 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.
Mr. Flight: 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
Column Number: 394period over which to spread it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Flight: I beg to move amendment No. 196, in page 74, line 45, leave out '6th April 2003' and insert—
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?
John Healey: 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.
Mr. Flight: That is a practical explanation that I have understood. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chairman: 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.
Column Number: 395
(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—
(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 Chairman: New clause 12, which is in the name of the official Opposition, was the first one that I mentioned. I think that, as a courtesy, I must call the Opposition Front Bench spokesman first.
Mr. Flight: 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,
Column Number: 396until 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.
Roger Casale (Wimbledon): 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
Column Number: 397liability 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
Column Number: 398gifts 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.
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