Is cracking down on charitable tax relief a good cause? Whatever the outcome of the consultation, due to be announced in the summer, charity bosses say the proposals have already done damage. Sir Stuart Etherington, chief executive of the NCVO, said: "This consultation will not happen early enough to stem the tide of alarm hitting charities and donors. The Government needs to act now. The charity tax cap was announced as part of a general plan to crack down on tax avoidance by the super rich. It aims to cap all income tax reliefs at £50,000 or 25pc of income, whichever is the greater. It does not apply just to charitable giving but also to tax breaks for business losses and interest payments on loans. Because it affects only those people who give very large sums of money to charity, the cap would not affect large numbers of individual givers. However, roughly half of all charitable donations come from just 7pc of donors, and it is these people who will be hit by the changes. Those donors who have large assets, such as properties or investments, rather than lots of income will be most likely to be affected. Many of them give much more than a quarter of their income to charity. These people currently take advantage of a tax relief called Gift Aid, which was introduced in Britain in 1990. Gift Aid allows anyone who gives money to charity to claim the tax back on it. To start with, only donations over £600 in cash were eligible for the tax relief, until this threshold was removed in 2000. The relief was originally only on cash donations but can now be claimed on other donations including items to charity shops. The Government said rich people were dodging tax by making donations to charity and then using them to reduce their tax bills. Under the Gift Aid scheme, charities are able to reclaim the basic-rate tax you have paid on your donation - provided that you have signed the relevant declaration form. The charity usually reclaims basic-rate income tax paid on the gift from HMRC. For a basic-rate taxpayer, this adds approximately 25pc to the value of any gift made under Gift Aid. However, high and additional-rate taxpayers can also claim income tax relief above and beyond the amount claimed directly by the charities. The rate of this relief for higher-rate taxpayers in 2012 is usually 20pc, which is the difference between the basic rate of tax and the higher rate, although those who get income from dividends can get a higher rate of tax relief. Mr Cameron said rich people were abusing this relief by funnelling money into charities abroad that do little charitable giving. The Prime Minister's spokesman said: "In certain instances, individuals may be giving money to charities that don't in all cases do a great amount of charitable work." He added that the relief did not apply just to charities that operated in the UK. Wealth manager Anna Sofat, from Addidi Wealth, said she was "in two minds" about the proposal. "On the face of it, it is quite penal on charities and quite harsh," she said. However, she added that everyone else had to pay tax to pay for schools and hospitals rather than giving it to a cause of their choice. She said some people could become very influential in certain areas by putting lots of money into a trust, not giving it away immediately and then making a large charity donation under the current rules. However, she added that for her "relatively well-off" clients who gave money to charity, "the tax side does matter." Mr Weil said it could have a "very damaging effect." "Under UK rules, you cannot end up any better off by giving money to charity," he explained. If we are talking about allegations of abuse of the system, we already have rules in place to deal with this. We have one of the strictest regimes in the world when it comes to charity regulation, and if people are giving money to dodgy charities then these charities should lose their status. Philip Haden, a financial planner from McCarthy Taylor, said one of the alternatives to the current charity proposal would be to introduce lifetime legacies, which is a system used in the US. These legacies allow a donor to make a gift to a charity, during their lifetime, of shares, property or cash. However, they keep the benefit of the income or use of the gift for the term of their life. The donor can make deductions against capital gains tax at the time of the gift and its value is not counted as part of their estate for the purposes of inheritance tax. Mr Weil said lifetime legacies would be a sensible alternative proposal. Mr Haden said those who were not affected by the cap should still ensure they gave to charity as tax efficiently as possible. This can include timing your gift so that your claims do not create liability in later years. Always check with the Charity Commission that the charity you are giving to is bona fide, he added. Donations to charity can be left in your will and this has the impact of reducing the inheritance tax (IHT) liability from 40pc to 36pc, as long as you donate at least 10pc of your estate on death. You can also gift unwanted shares through ShareGift, which can reduce your tax bill. Many people have small shareholdings that can be expensive to sell but do little for them. ShareGift aggregates and sells these holdings, and donates the proceeds to a range of charities. You can claim full personal tax relief on listed shares and collective funds, as well as capital gains tax relief, so gifting shares can help minimise your tax bill. If you donate £1,000, this could reduce your tax bill by £220 (or £500 for higher-rate taxpayers). Since 1996, ShareGift has donated more than £15m to more than 1,750 charities. You can claim this relief via your self-assessment form or your tax office. Keep a signed and dated copy of the transfer form that ShareGift sends, and note the value of the shares on the day donated. For more information visit sharegift.org or call 020 7930 3737.