The real story about tax reliefs

Q How has income tax relief on charitable giving worked in the past?
A When income tax payers give to charity they use the “gift aid” system to allow the charity to claim back the tax paid. This gives the charity an extra 25 per cent. But higher rate payers can also add donations to their tax return at the end of the year and claim extra tax relief, because they paid more than 25 per cent tax on their income.

Q So higher-rate taxpayers gain by giving to charity?
A No. They are still giving money away, and end up with less money. However, Osborne is annoyed that the Treasury also gets less.

Q What will happen under the new rules?
A From 2013, donors can only claim the relief on the first £50,000, or 25 per cent of their income – that reduces the incentive to donate.

Q Do all high earners pay very little in income tax thanks to dodges?
A No. The top one per cent of earners pay 27 per cent of total income tax. Also, genuine frauds through reliefs can be stopped. An accountant was convicted in January after donating shares to charity and lying about their value to claim excessive tax reliefs.