Government to consult on plan to cap charity tax relief

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

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 - and the Treasury says it is losing out on £50-100 million a year.

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, adding: "We want to explore ways we can introduce a cap."

Earlier, Exchequer Secretary to the Treasury David 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.

Conservative MP Douglas Carswell has said he is prepared to vote against the government's proposals.

He told BBC Look East: "A government should be giving tax breaks to help philanthropy. I thought that is what the Big Society is supposed to be about. I think we should drop this plan it is wrong."

He added: "I am a member of the legislature and my job is to hold the government to account and I am willing to stand by my principles in the voting lobby."

BBC political editor Nick Robinson says he expects the government to stick to plans for a tax relief limit of some kind.

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.

'Branded tax-dodgers'

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

In a speech in Washington, former Labour Prime Minister Tony Blair warned that "this is absolutely the right moment for government to do all it can to promote philanthropy; and certainly nothing to harm it".

Mr Blair later told Newsnight on BBC Two that the government should use its consultation period to "think again".

"Most people give to charity because they want to give to a good cause not to avoid tax so I think the best thing, frankly, is to separate those two things out. If there's tax avoidance issues you can deal with them in a different way," he said.

"Anybody who's giving money to a charity - if they're giving it to a genuine charitable cause - they're losing money."

Mr Blair said the philanthropic sector could be "more creative, more innovative, than traditional ways of government" and could be a "great inspiration and complement to it".

Labour said it would seek to force a vote on what it calls the "charity tax" in the Commons on Wednesday, after leader Ed Miliband called it "a hasty and ill-thought through measure" from a government "desperate to cover up the 50p tax cut".

Meanwhile, the Treasury has published figures showing that 6% of the £10m-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.

Source: HMRC, 2010-11