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Government to consult on plan to cap charity tax relief

Downing Street has said the government will launch a formal consultation in the summer over plans to limit the tax relief on charitable donations.

A spokesman said there were "various options on table" and ministers wanted to "get the balance right".

The planned cap has been criticised by Labour and philanthropists, as well as some senior government figures.

Number 10 said David Cameron wanted to see more charitable giving and did not want to impact on donations.

Ministers say they want to end the practice of wealthy people minimising their tax bill – sometimes to zero – by donating to charity.

Although the donor does not personally profit in this way, it means they are choosing where their money is spent – unlike normal taxpayers.

Under the plans, previously uncapped tax reliefs – including on charitable donations – would be capped at £50,000, or 25% of a person's income, if that was higher, from 2013.

'Opt out'

Downing Street said a consultation would begin after talks with individual charities.

A spokesman added: "We want to explore ways we can introduce a cap. It's about getting the balance right. There are various options on the table."

Earlier, Exchequer Secretary to the Treasury Mr Gauke defended the planned cap, telling BBC Radio 4's Today programme: "Our concern is that it's not fair that the vast majority of people… make a contribution towards the NHS and armed forces and so on, but there are some wealthy individuals whom the tax system essentially allows to opt out."

The government has talked about the need to prevent people giving to "dodgy charities" in order to minimise their tax.

Mr Gauke said a new cap would bring in an additional £50-100 million a year, but acknowledged that "the vast majority of that is not what one would call abusive in terms of dodgy charities".

But he added: "We don't think it's fair that people are able to get their rate down that low even when the donations are to completely legitimate charities."

The minister said the cap would have "an impact" on charities, but the government would work closely with the sector, particularly those organisations very reliant on large donations, "to take steps to protect them".

The BBC's political editor Nick Robinson says he expects the government to stick to plans for a tax relief limit of some kind – not least because benefits are also facing a cap and ministers must be seen to be cracking down on perceived abuse at both ends of the spectrum.

But he says there is clearly some room for manoeuvre around the specifics of the measure, for example, people could be allowed to roll over their tax relief allowance from one year to the next, or make a lifetime gift that would be exempt from tax.

Budget criticism

Among those criticising the plan is Conservative Party treasurer Lord Fink who says it will put people off giving large sums to good causes.

Former Prime Minister Tony Blair has also stepped in to the row and will urge the government not to damage incentives for giving.

In a speech on Monday evening in Washington, Mr Blair is expected to say: "This is absolutely the right moment for government to do all it can to promote philanthropy; and certainly nothing to harm it."

Meanwhile, the Treasury has published figures showing that 6% of the £10 million-plus earners – 12 people – paid less than 10% in income tax in 2010-11, while another 3% paid less than 20%.

Overall, more than 73% of those earning more than £250,000 paid tax at a rate above 40%, including 81% of those earning £5-10 million and 72% of those earning £10 million-plus.

The BBC's business editor Robert Peston says this shows the tax avoidance which HM Revenue and Customs says greatly reduced the yield of the 50p tax rate was carried out by a tiny minority of top earners.

Chancellor George Osborne has faced several weeks of sustained criticism over his Budget, including plans to cut the 50p top rate of income tax to 45p while removing tax reliefs for some pensioners and imposing new levies on pasties and other hot snacks.

With Labour set to force a series of votes on the tax measures, shadow chief Treasury secretary Rachel Reeves said: "We've got our major charities, universities, and arts organisations in this country saying it is going to cost them.

"Yes, we want to make sure people are paying their fair share of tax, but the people who seem to be losing out from this change aren't tax avoiders – it's the charities and people who rely on the charities."

This article was taken from www.bbc.co.ukhttp://www.bbc.co.uk/news/uk-politics-17724415