LONDON (Reuters) - Some six percent of Britain’s wealthiest people used tax reliefs to reduce their tax bills to less than 10 percent, according to data published by Britain’s finance ministry on Monday, which it said highlighted the need to make the tax system fairer.
Last month’s decision by finance minister George Osborne to cap the level of tax relief on charitable donations to 25 percent of income has drawn howls of protest from within his own Conservative party as well as from charities, who argue that the move will significantly hit donations.
The Treasury figures show that 3 percent of people with earnings of between 1 million and 5 million pounds ($1.58 million and $8 million) paid less than 10 percent tax in the 2010-11 financial year.
That proportion increased to 4 percent of those with an income of 5-10 million pounds and 6 percent of those with an income of above 10 million pounds.
In Britain, anyone earning up to 34,370 pounds is liable to income tax of 20 percent, while those earning over 150,000 pounds must pay 50 percent, though that is set to fall to 45 percent from April 2013.
The Treasury said its figures illustrated the importance of the principle behind the government’s cap on reliefs, showing that people on the lowest incomes paid a higher rate of tax than millionaires.
“We’re capping benefits and these figures clearly show why it’s fair to cap tax reliefs for the wealthy as well,” said a Treasury spokesperson.
Critics of the cap on tax relief for charitable giving argue that the policy is at odds with the Conservative party’s flagship “Big Society” ideal to encourage voluntarism and philanthropy.
The Treasury defended the move, however, saying that it wanted to encourage a U.S.-style culture of giving, with low income tax rates for the wealthy, and said it would work with charities and donors over the next year to limit the impact.
Reporting by Fiona Shaikh