Charities are to receive a £540m boost in a move by George Osborne to give fresh impetus to David Cameron's vision of creating a "big society".
Despite the success of high-profile events such as Comic Relief, there is evidence that many charities are struggling to raise cash as family budgets come under pressure.
The involvement of charities in "big society" initiatives is essential if the Prime Minister is to succeed in encouraging more people to become involved in good works.
Although the Chancellor is known not to share Mr Cameron's zeal, he set out plans for the "most radical and most generous reforms to charitable giving for more than 20 years".
Under changes to inheritance tax to be introduced in April 2012, the amount of cash to be collected by the Treasury will be reduced when 10 per cent of estates are left to charity. The resulting tax break will go to the charities – not other beneficiaries – in a move that Mr Osborne said would raise £300m for charities over four years. He added: "I want to make giving 10 per cent of your legacy to charity the new norm in our country."
The Gift Aid scheme, under which charities can reclaim the basic rate tax on donations, is to be overhauled to allow charities to recoup tax on small donations up to a total of £5,000 a year, without the need to fill in forms.
Mr Osborne said: "100,000 charities will benefit to the tune of £240 million."
To encourage the wealthy to donate more, the maximum amount of Gift Aid that can be claimed back on a gift will be raised from £500 to £2,500.