CHARITIES and tax lawyers attacked George Osborne’s plans to limit tax relief on donations yesterday, calling the move “heavy handed” and “perverse.”
Relief will be limited to the income tax paid on the first £50,000 of a donor’s earnings or 25 per cent of their income, reducing incentives to give to charities.
“As a result of government spending cuts, charities are relying more and more on major gifts, which will be hit by this change,” said Peter Lewis from the Institute of Fundraising.
“When the government promotes the ‘big society’ and wants more people to give to charity, it seems perverse to reduce incentives to give.”
The limit will also apply to reliefs for offsetting business losses from previous years – meaning losses and profits are no longer treated equally by the taxman – as well as certain interest payments.
Osborne yesterday claimed to be “shocked” when shown examples by HM Revenue and Customs of high earners paying almost no tax because they gave lots to charity or offset large losses from previous years. But lawyers dismissed his apparent surprise as “not credible,” due to his family’s riches and his ability to call on Treasury research.
The 20 cases studied would have paid an additional £145m in income tax had they not claimed the reliefs. But the taxpayers in question are not using unusual methods to avoid tax and experts criticised the move as a sharp change of policy.
“These are all reliefs enacted by parliament, used in line with parliament’s intentions – they are not going out of their way to avoid paying tax,” said PwC partner Alex Henderson.
As well as harming charities by removing incentives to donate, the rental market could also suffer.
“Landlords are not currently gaining from house prices as they are not rising, so they rely on rental income,” said George Bull from Baker Tilly.
“If people are worried about tax relief on interest payments, they will pull out of the market.”
The Treasury argued that the allowance remained generous, and that it is wrong some high earners pay less income tax than a basic rate taxpayer because of unlimited reliefs.