Cap on income tax reliefs set to raise £300m but charities will suffer most

CHARITIES fear that changes to tax relief announced in yesterday’s Budget could “strangle” major donations to good causes.

The Charities Aid Foundation (CAF) warned that a cap on income tax rebates may put off philanthropists from making major donations to good causes, saying the change is at odds with government policy.

“Tax relief on major donations is not tax avoidance. It is supporting major donations by people who in some cases are donating the proceeds of a lifetime’s work to charity,” said John Low, chief executive of the CAF.

Currently, when a higher rate taxpayer donates to charity some of the tax they should have paid on the money goes to the charity and some can be reclaimed.

But from next year the amount of tax relief that an individual can claim back in any one year will be capped at 25 per cent of income, or £50,000.

The reform is intended to close loopholes that enable high earners to minimise income tax payments by wilfully subsidising loss-making companies and the Treasury believes that it will raise over £300m a year.

George Osborne defended the reforms, saying: “It is also right that we have tax reliefs that promote investment, support charitable giving and reflect genuine business losses. But it can’t be right that some people make unlimited use of these reliefs year after year.”

The Treasury insists that it will work with philanthropists to minimise the impact on charities.