31 May 2012

U-turn on charitable giving tax relief cap

George Osborne announces a U-turn on controversial plans to cap tax relief on charitable donations following intense lobbying by charities and philanthropists.

The chancellor came under fire after he announced in his 21 March 21 budget that tax relief on charitable giving would be capped at £50,000 or a quarter of income – whichever was higher. Charities, philanthropists and donors to the Conservative Party argued that this would significantly deter donations from wealthy individuals, and that their income would decline as a result.

Now Mr Osborne has written to a number of charity sector representatives to inform them that the cap would be scrapped. His latest move prompted further accusations that the government was peforming yet another U-turn, days after ministers signalled a retreat on plans to impose charge 20 per cent VAT on hot pasties and on static caravans.

It is understood that dropping the tax relief cap for charitable donations is expected to cost the Treasury around £50m to £75m annually. The combined cost of all three reversals – on VAT on pasties and static caravans, and charities – is expected to cost less than £150m a year.

The charities tax relief cap is the only complete U-turn. With pasties, the government amended the definition of what constitutes a “hot” pasty; with static caravans, the 20 per cent VAT charge was cut to 5 per cent.

‘We’ve listened’

However, Mr Osborne said that a cap on unlimited income tax relief would continue, and that only charitable donations would be exempt.

“We won’t be capping relief for giving money to charity,” Mr Osborne said. “It is clear from our conversations with charities that any kind of cap could damage donations, and as I said at the budget, that’s not what we want at all. So we’ve listened.”

Mr Osborne also said his decision was taken to enable the government to “focus on the big issues like the worsening eurozone crisis and Britain’s deficit, and not get distracted with unnecessary arguments.”

“We’re going to concentrate our efforts on what really matters: keeping Britain safe in the gathering storm,” he said.

The cap on tax relief for charitable donations was announced by Mr Osborne in the March budget as part of a package of proposals designed to crack down on wealthy business owners avoiding paying higher taxes.

Higher rate taxpayers have been able to donate unlimited amounts of money to charity and claim it off their tax bill. In some cases, they could bring the bill down virtually to nothing as a result.


The Treasury said that they had not wanted the cap to significantly dent the income of charities which relied on large donations. A spokesman said that the decision to remove the cap tax relief for charitable donations followed “discussions with charities”.

Labour accused the chancellor of making the announcement to deflect attention from potentially embarrassing revelations from Culture Secretary Jeremy Hunt, at the Leveson inquiry, and called it another U-turn by a “shambolic” government.

Shadow chancellor Ed Balls, writing on Twitter, said: “It seems George Osborne has lost control at the Treasury – tax u-turn after tax u-turn as economic plan collapsing.”

Gareth Thomas MP, shadow charities minister, who had been arguing against the cap, added: “This decision has already done considerable damage, and taken alongside huge cuts in government funding and contracts like the Work Programme not delivering the money for charities ministers once promised, has been responsible for the toughest year in a generation for Britain’s charities and community groups.

“If ministers understood the work charities did, the vital difference they make for some of our most vulnerable and the important contribution they offer to make our communities stronger, this policy mess could have been avoided.

“Instead we have the spectable of George Osborne trying to bury bad news on the day one of his rivals is in hot water at the Leveson inquiry.”


Charities welcomed the rethink. Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said: “We are delighted that the chancellor has listened to reason and pledged to drop the charity tax.

“This is a victory for common sense and validates the strength of feeling from the thousands of organisations who lent their weight to the ‘Give it Back, George’ campaign.

“This is a great day for philanthropy.”