The UK government has scrapped controversial plans to cap the amount of tax-free donations that individuals can make to charities, a move likely to be welcomed by the philanthropy sector.

The UK philanthropy sector – in which the wealth management sector plays an important role – has avoided the blow of losing a cap on tax deductible donations after George Osborne decided to scrap the idea, media reports said.

Osborne has removed charities from plans to cap reliefs at 25 per cent altogether.

David Gauke, Exchequer Secretary to the Treasury, told the BBC today that the decision had not been taken to avoid political embarrassment.

"This is not [bad] news that's going to be buried... every day is a busy day this week,” he said.

The cap - limiting relief at £50,000 or 25 per cent of income, had been proposed in Osborne's 21 March annual budget statement. The move drew fire from charities and wealth management firms such as Brewin Dolphin, for example.

Coutts, the UK private bank, welcomed the change.

"Wwe welcome the news as it recognises the important role that private philanthropy plays in supporting the crucial work of charities in supporting the vulnerable and in enriching our lives through education and the arts in the UK and around the world," Maya Prabhu, executive director, Philanthropy Services atCoutts, said in an emailed statement to WealthBriefing.

Withers, the international law firm, also praised the change.

“I am delighted with the Chancellor's announcement today that the proposed income tax cap will be abandoned for charitable gifts. This is a fantastic result for all those charities, philanthropists and others who have been lobbying publicly and behind the scenes on this issue and one hopes that the Government's own endowment and match funding initiatives now have a chance to flourish,” Alana Lowe-Petraske, solicitor in the charities team at international law firm Withers, said.

“It will remain to be seen if donors and charities trust this Government on philanthropy issues after the unfortunate way the proposal was handled, but this is excellent news for the whole sector, from philanthropists to the smallest charities,” Lowe-Petraske added.

The Daily Telegraph reported that the change of mind on the idea will “cost” the UK government between £50 million and £100 million.

In April, Brewin Dolphin said it was alarmed at change to tax reliefs on donations. The UK-listed wealth manager had called the claim that philanthropists are giving money to good causes as a way of dodging tax an “outrageous slur”.

This publication has been told by a number of other domestic UK wealth managers of their concerns about the change to tax-free contributions.

Rebecca Eastmond, head of Philanthropic Services EMEA at JP Morgan Private Bank, welcomed today's announcement by the government.

“The government’s decision not to press ahead with the proposed “charity tax” is an important signal that an individual’s decision to use their wealth to support others is valued and encouraged by government,” she said.

“Tax relief is never the primary motive for someone to give money to charity, although it can make a significant difference to the amount given, but the government’s endorsement of charitable giving is vitally important as a point of principle. We are a generous nation, and we have a proud history of philanthropic giving. Now, more than ever, we need to encourage individuals to support the most vulnerable in our society. It is great news that the government is continuing to back wealthy donors to do just that,” Eastmond said.