U-turn possible on charity tax cap

Senior figures within the Conservative Party are among those warning the change would put off the wealthy from giving.

Ministers are also facing a significant challenge to another tax proposal after 23 cathedral deans wrote an open letter to chancellor George Osborne demanding he drops plans to impose VAT on restoration work on cathedrals and churches. The letter, which is signed by the deans of York, Sheffield, Bradford and Wakefield, warns the Chancellor’s proposal “seriously jeopardises the sustainability of many of our great buildings.”

Tory Party treasurer, millionaire Lord Fink, one of the country’s most generous supporters of good causes, said capping tax relief on charitable donations would inevitably reduce the amount they received.

“If you have to pay out of your capital the tax on your income you give, it will put people off,” he added.

Tory MP Zac Goldsmith said yesterday he was “ashamed” that his party appeared to have “declared war” on the very people who should be at the heart of the Government’s Big Society project.

A group of leading benefactors also warned the proposal would act as “a brake on philanthropy”. In a letter to the Sunday Telegraph, 46 wealthy donors including members of the Sainsbury family, urged a rethink.

However, Deputy Prime Minister Nick Clegg defended the scheme and said it was “not right” that some super-rich individuals exploited tax reliefs to cut their income tax bills “to almost nothing”. “There’s been a lot of controversy about plans to cap charity tax relief. But it is not right that some wealthy individuals can use them without limit to reduce tax bills to close to zero,” he said.

But there were reports the Treasury is considering alternatives to the £50,000 cap. A spokeswoman said officials were in talks with philanthropists to find ways to limit the impact on charities that rely on big donations.

Senior Tory MP David Davis said it was a “tax without friends” and he expected the cap to be dropped and replaced with an alternative method to tackle the issue. Senior Liberal Democrat Sir Menzies Campbell said the Government is “obviously accepting it has got to go back and look at this again.”

Reports suggested the main option under consideration was a US-style “lifetime legacies” system allowing individuals to “donate” assets to institutions and charities but continue to benefit from their assets during their lifetime.

Prime Minister David Cameron said last week that he would listen “very sympathetically” to charities concerned that philanthropic giving will decline as a result of the change.

Former Liberal Democrat leader Paddy Ashdown defended the Government’s attempt to counter moves by some of the very rich, whom Ministers have claimed are selecting charities to fund in lieu of paying tax for public services.

“There is a problem here but it is simply not open to the kind of simplistic solution that Labour grabs hold of for opportunistic reasons,” he said. “But there is a problem. What is the Government trying to do? It’s trying to make sure the rich pay their taxes and don’t dodge them.

“Just imagine everybody did this, that everybody said I’m not going to pay my taxes, I’m going to donate to a charity of my choice.

“No taxes – no hospitals, no schools, no welfare. There is a sensible balance to be struck here. If the Government has to recalibrate, retreat if you like, to find that balance that is right and proper they should do so.”

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