Generous to a Fault: Is the US more Charitable than the UK?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Charity, it has been said, helps reinforce society’s positive, solid foundations, so it’s perhaps appropriate that a 17th-century architect is credited with having originated one of the most well-used quotes on the topic.

Sir John Vanbrugh – the man who designed a number of Britain’s most palatial properties, including Blenheim Palace and Castle Howard, no less – is said to have remarked that “virtue is its own reward..there’s a pleasure in doing good”.

If he was correct in summarising how, at that time, an act of selflessness contained an inherent element of satisfaction, his universal truth might be at least a little wide of the mark today.

Setting aside all the celebrity cajoling which is a part of all major appeals, I wonder whether people now believe that other adage about charity actually beginning at home.

Steady decline

According to the most recent annual report from the Charities Aid Foundation, for instance, there’s been a “steady decline” in the number of British people choosing to support so-called ‘third sector’ organisations either via regular donations or sponsorship.

That’s despite the fact that in addition to donations attracting tax relief during someone’s lifetime, estates which leave at least 10 per cent of their wealth to charity see the usual rate of Inheritance Tax (IHT) reduced from 40 to 36 per cent.

Regardless of the drop in charitable acts by individuals of relatively modest means, tax relief is perhaps one reason why this year’s edition of the Sunday Times’ Rich List reported a rise in the amount given to charity by some of Britain’s richest citizens over the last year to £3.75 billion.

US philanthropy

Enormous though that amount might seem to most of us, it is still dwarfed by conspicuous displays of philanthropy across the Atlantic.

The most recent figures available show that Americans gave £323 billion to charity during 2017 – up five per cent on the year before.

Even after allowing for the fact that the US population is 5 time that of the UK – it does appear that the UK is much more mean spirited than the US.

Why is this? Is it the availability of tax relief? Is it something more about the nations’ differing psyches?

Alternatively, is it more to do with the examples being set by the likes of Microsoft co-founder Bill Gates, his wife, Melinda, and renowned stock-picker Warren Buffett. Their ‘Giving Pledge‘, established in 2010, aims to encourage billionaires across the US and further afield to give more than half their eye-watering riches to charity.

Mackenzie Bezos

One of the latest to honour that request is Mackenzie Bezos, until recently the wife of Jeff Bezos, the founder of the e-commerce behemoth Amazon.

She has reportedly elected to give half of the £28 billion which she received in their divorce settlement to charity

Nevertheless, America’s record charity receipts may simply have been prompted by a change in tax law by President Donald Trump.

Simply put, the Tax Cuts and Jobs Act which was enacted in December 2017 means that Americans now have to give more cash to charity in order for their contributions to qualify for tax relief.

Some commentators have suggested that may mean individuals “bunching” donations (ie, making them less frequently) in order to meet the necessary threshold for deductions.

Corporate donations

It’s worth pointing out, of course, that donations by companies also attract tax relief. In the UK, for example, businesses which give cash or products, property or shares, second staff or making sponsorship payments to charity are all able to deduct the value of such donations from their total profits before calculating how much they might owe HMRC in tax each year.

There are some commentators who believe that might mean corporations supporting good causes for reasons which are not exactly public-spirited. That argument is not entirely abstract and surfaced after a fire devastated Paris’s historic Notre Dame Cathedral in April.

Jean-Jacques Aillagon – once a former French Culture Minister and now turned Director General of the art collection belonging to the retail billionaire François Pinault – suggested tax breaks of up to 90 per cent should be given to those who donated money to help rebuild the cathedral.

His comments followed the decision by Monsieur Pinault’s holding company, Artemis, to pledge almost £90 million to the restoration project, although the two were said to be unrelated.

Of course, if such a national emergency were to happen in the UK, donations would most likely be classed as tax-deductible without the need for the kind of lobbying currently taking place in France.

Even so, the issue underlines the current – perhaps understandable – tension between charity for charity’s sake and being a donor to take sensible advantage of associated benefits.

 

To paraphrase Sir John Vanbrugh, there is a pleasure in doing good and even more so if it helps shrink our tax bills.

 

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