Pre-Budget Update for the Third Sector

charities notebook

Budget 2016

Julie Hutchison

14th March 2016 at 3:42pm

With the Budget due on 16 March, it’s a good time to recap on what came out of the 2015 Autumn Statement from a third sector perspective.

This included positive funding announcements for some charities, as well as news of benefit to military charities.

Banking fines put to good use

The Autumn Statement report named military and other charities which will share in benefiting from £25m of banking fines over the next three years (page 114 has the full list).

Expansion of the National Citizen Service

Up to 300,000 National Citizen Service places are to be made available by 2019-20, through funding announced as part of the Cabinet Office settlement.  The service aims to help 15-17 year-olds build work and life skills.

Funding for charities supporting women

A new £15m annual fund was announced, equivalent to the VAT raised each year on women’s sanitary products.  An initial £5m was earmarked for The Eve Appeal, SafeLives, Women’s Aid and The Haven.

The 2016 Budget will have more news on donations and recipients.

This funding is due to run over the course of this Parliament, or until the UK can apply a zero rate of VAT.

Gift Aid Small Donations Scheme

A consultation looking at the use and effectiveness of the existing small donations scheme ran from 9 December 2015 until 2 March 2016.

Charities are awaiting the conclusions to see if or how the scheme can be simplified, including reducing the amount of paperwork and encouraging more charities to use the scheme to claim top-up payments on small donations.

The small donations limit which qualifies under this scheme is due to increase from £5,000 to £8,000 in April. This translates into a maximum Gift Aid top-up of £1,250 on £5,000 of small donations under current rules, increasing in April 2016 to a top-up payment of £2,000 on £8,000 of small donations.

Deeds of variation stayed the same

The government had been reviewing whether to introduce new restrictions on deeds of variation

which amend how someone’s estate is distributed within two years of death. At the last Autumn Statement, it was announced no changes would be made. These documents can have an impact on legacy income for charities.

Charity donations and inheritance tax

It was interesting to see projections that inheritance tax is expected to raise more for the government over the next five years, from a forecast of £4.4bn in 2015-16 to £5.6bn in 2020-21. Against this background, the core charity exemptions are worth remembering:

  • an estate can pay inheritance tax at a reduced rate of 36% on some assets (instead of 40%) if 10% or more of the net value is left to charity;
  • money left to a charity under a Will (and lifetime gifts) are free of inheritance tax too.

More support for Social Impact Bonds

 The government will expand its support for Social Impact Bonds to £105m, with a particular focus on homelessness, youth unemployment and mental health over the course of this Parliament.

Social Impact Bonds aim to fund early intervention to tackle the root causes of a range of social issues.

 Charity Commission funding set

Charity Commission funding was set at £20m annually for the period to 2019-20.

To get the latest on how Budget 2016 impacts funding and tax for charities, keep an eye on our moneyplus blog announcements.

The information in this blog or any response to comments should not be regarded as financial advice.  Laws and tax rules may change in the future. Standard Life is not responsible for the content of external websites.  The information here is based on our understanding in March 2016.