Budget reaction: Charity tax relief

While the basic rate of income tax will fall by 2% to 20% in April, the Chancellor announced that a transitional rate would apply to Gift Aid claims for the next three years. Charities will continue to be able to claim aid at the current rate of 22%, which Alistair Darling said would deliver £300m worth of relief to charitable organisations.

The move was welcomed by charities, who had appealed for the government to make concessions on the tax cut which they said would have a ‘devastating’ impact on their ability to raise funds.

The Charity Tax Group said the concession was worth £24m to the Church of England alone.

'We are delighted that the Chancellor has recognised the importance of supporting large and small charities in this positive way,' Helen Donoghue, director at CTG. 'This transitional relief gives the Government sufficient time to look at the Gift Aid system as a whole and the positive proposals put forward by the sector to simplify and modernise this important relief and improve take-up of it.'

Deloitte also welcomed the announcement.

'The reduction in basic rate tax was potentially going to cost charities up to £90 million pa, as their repayments are calculated on basic rate tax,' said Bill Dodwell, head of tax policy.

'The change is especially welcome, as it has been very hard for charities to explain easily to their donors why they lost money through the basic rate reduction.'