The Charities Aid Foundation has hit back at claims that major donations to charity were ploys to save tax by wealthy people.
It follows a review by HMRC in tax avoidance which found that the use of tax reliefs on charitable donations was among the top three tax loopholes used to legally reduce income tax bills.
Chancellor George Osbourne’s March Budget also announced that from April 2013, the maximum amount that will be able to be reclaimed in tax relief – including charitable giving – will be £50,000 or 25% of the individual’s income, whichever is greater.
The Chancellor told the Daily Telegraph that he was left “shocked” by the scale of legal tax avoidance by multi-millionaires, while Downing Street have said some wealthy people are donating to charities which do not “do a great deal of charitable work” in order to cut their tax bills.
John Low, chief executive of the Charities Aid Foundation, said the new cap cost charities millions of pounds, while the tax avoidance claim was “quite wrong”.
He said: “Whoever is advising the chancellor is quite wrong to equate tax relief on major donations to charity with tax avoidance.
“This is not a ploy to save tax. Philanthropists who make large donations give away far, far more than they could ever claim in tax relief. That money goes to fund projects for the public good, such as medical research and help for the most vulnerable in society.”
He said a blanket cap “will cost charities millions of pounds by making it more difficult for philanthropists to make major donations” adding: “We should recognise and celebrate today’s great philanthropists, not brand them as wealthy tax dodgers.”
The Prime Minister’s official spokesman responded by saying: “In certain instances they may be giving to charities and those charities don’t, in all cases, do a great deal of charitable work,”
He also suggested that some of those charities were operating abroad.
“The reason that the chancellor decided to bring in the cap was that certain individuals in this country on very high incomes are exploiting these reliefs to reduce their tax bills,” he added.
“We cannot be in a situation where very wealthy individuals are able to wipe out their bills by using these reliefs.
“We don’t think it is right that someone on a very high income is paying far less tax than the average family in this country.”