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Income tax - cap on unlimited reliefs

Published Thursday, September 12, 2019

In Budget 2012 the Government announced that from April 2013 it would introduce a cap on certain unlimited income tax reliefs. Initially many charities raised concerns that this could have a very serious impact on the incentives for those on higher incomes to make charitable donations. In December 2012 the Government confirmed it would proceed with the cap, though tax relief on charitable donations would be excluded from its scope. This note gives more details.

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n Budget 2012 the Coalition Government announced that from April 2013 it would introduce a cap on certain unlimited income tax reliefs.  For someone seeking to claim more than £50,000 of relief, a cap would be set on the amount given, set at 25% of the claimant’s income or £50,000, whichever was greater.  The announcement proved highly controversial. Many charities argued that this measure would undermine the tax incentives for those on higher incomes to make charitable donations, even though the Government had stated in the Budget report that it would “explore with philanthropists ways to ensure this new limit of uncapped reliefs will not impact significantly on charities that depend on large donations.”[1] 

Initially the Government underlined that it would consult on how the proposed cap on reliefs would work in practice over the summer,[2] although some weeks after the Budget  Ministers made it clear that tax relief on charitable donations would be excluded from the cap.[3] In July 2012 a formal consultation on the cap was launched; responses were invited by 5 October that year.[4]  In the Autumn Statement in December 2012 the Government confirmed that it would proceed with this reform,[5] and provisions to this effect were included in the Finance Act 2013 (specifically section 16 and Schedule 3 of the Act).

Public concerns over the new cap on tax reliefs appear to have been met by the Government’s decision to exclude charitable donations from its scope.  Following the passage of this legislation the issue does not appear to have been raised in the House. HM Revenue & Customs publish guidance on the operation of the cap, to help taxpayers complete their annual tax return.[6]

Notes : 

[1]     Budget 2012, HC 1853, March 2012 para 2.40

[2]     HMT/HMRC, Cap on unlimited income tax reliefs, 5 April 2012

[3]     See, for example, HC Deb 12 June 2012 cc397-8W

[4]     HC Deb 13 July 2012 70WS; HMT/HMRC, Delivering a cap on income tax relief: a technical consultation, July 2012. The document underlined that charitable reliefs would be excluded from the cap (para 2.13).

[5]     Autumn Statement, Cm 8480 December 2012 para 2.51; Budget 2013, HC 1033, March 2013 para 2.36

[6]     HMRC, Limit on Income Tax reliefs (Self Assessment helpsheet HS204), 6 April 2019

Commons Briefing papers SN06303

Author: Antony Seely

Topic: Taxation

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