Look, I'm no fan of Tony Blair, but let's be fair. Some of the media are implying that his gift to the Royal British Legion is a tax wheeze. The misleading headlines include "Tony Blair could save £2.3m tax on British Legion donation".All the tax relief does is to reduce the cost of the gift. And this is very different to the implication of the press reports.
The following numbers prove the point:
- Let's assume Blair's taxable income without the book is £10m. With the book advance/royalties it would be £14.6m. The bulk of this would be subject to 50% tax. Let's say £7m in total
- By giving away the £4.6m Blair's tax bill does indeed fall by £2.3m due to the 50% relief potentially available. But this isn't the whole story.
- If Blair was keeping the advance etc he would have a net £7.6m left after tax (being the £14.6m less the tax thereon of £7m)
- By making the donation he only has £5.3m (being what's left after paying tax on the £10m (£14.6m less the donation of £4.6m).
And let's remember too that if the gift qualifies for tax relief then the Royal British Legion will be due to receive a consequential tax payout from HMRC. This increases the value of the gift to the charity. It's why they generally encourage donors to confirm that monies are paid under the Gift Aid tax scheme.
If as one supposes the £4.6m is a net amount under gift aid the value of the gift to the British Legion issaved on the gift is £5.75m and your tax saving calculation needs to use that figure.
ReplyDeleteThanks Geoff.
ReplyDeleteI was simplifying the position. You're right but it still doesn't put him a better position. The tax saving still only reduces the cash impact on him of giving away the money. He's not better off as a result of the gift, which is the point I was trying to make.