CheckLists.Tax (beta)
J1. Gift to charity
GENERAL
Tax definition of charity
- Established for charitable purposes only, subject to UK court jurisdiction, registered
General
- Charity means a body of persons or trust that meets condition A to D (FA 2010, Sch 6, para 1).
- HMRC may publish a list of bodies/persons meeting these conditions (para 6).
- Definition applies for basically all tax purposes (see para 7).
(a) Established for charitable purposes only
- Purpose for which body established determined by reference to constitutional documents.
- "[53] Some matters are clear as to the meaning of the phrase "established for charitable purposes only". First, in a case like the present, the purpose for which an institution is established will be defined by the instrument which establishes the institution. In the case of a foundation trust, the relevant instrument will be the relevant statutory provisions and the constitution of the foundation trust..." (Derby Teaching Hospitals)
- Institution that is registered under Charities Act 2011 is conclusively presumed to be a charity for all purposes (s.37).
- Trust set up for the sole purpose of channelling funds to football club that was not charity was not a charitable trust (Simpson, §53).
(b) Subject to control of relevant UK court as charity
- Must be subject to control of High Court/Court of Session in exercise of its jurisdiction in respect of charities (para 2).
- Since 2023, control by foreign court as charity not sufficient.
- Charities Commission guidance:
"Where your organisation’s governing document does not make it clear that it falls within the High Court’s charity law jurisdiction, we will let you know.
The following factors can indicate that your organisation falls within the High Court’s charity law jurisdiction:
- your governing document adopts the law of England and Wales to govern it
- most of your trustees live in England and Wales
- most of your organisation’s property is in England and Wales
- your organisation’s centre of administration is in England and Wales." (Part 5)
(c) Registered under Charities Act 2011 or equivalent overseas register
-If a charity within Charities Act 2011, s.10, must be registered under s.29 (para 3).
- Otherwise, must have complied with any requirement under the law of a territory outside England + Wales to be registered in a corresponding register.
(d) Managers are fit and proper persons (or deemed to be)
- The managers must be fit and proper persons to be managers of the body or trust.
- Managers are persons having the general control + management of administration (para 4).
- Where condition not met, may be deemed to be met if HMRC consider (para 5).
- failure did not prejudice charitable purposes of body or trust; or
- it is just + reasonable for condition to be treated as met.
Legislation: FA 2010, Schedule 6;
Cases:
Simpson v. HMRC [2009] STC (SCD) 226), Judge Nowlan;
Derby Teaching Hospitals NHS Foundation Trust v. Derby CC [2019] EWHC 3436 (Ch), Morgan J;
HMRC manuals:
Commentary:
See also: Charity Commission Guidance;
- Community amateur sports clubs
- Treated as a charity for the purpose of gift aid if registered (s.430).
- Membership fees for registered CASCs are not gifts (s.430(2)).
Legislation: ITA, s.430; CTA 2010, s.661A;
Cases:
HMRC manuals:
Commentary:
See also:
INCOME TAX (DONOR)
- Others
Trustees of National Heritage Memorial Fund
- Treated as a charity for gift aid purposes (s.430).
Historic Buildings and Monuments Commission for England
- Treated as a charity for gift aid purposes (s.430).
Legislation: ITA, s.430;
Cases:
HMRC manuals:
Commentary:
See also:
Settlements legislation
- Donor as settlor of settlement
- There is no general exclusion from the settlements legislation for charitable trusts and s.636(1)(c) implies that they are included.
- s.636(6), (7) also seem to imply that donations are or can be income arising under a settlement
Legislation: ITTOIA s.636;
Cases:
HMRC manuals:
Commentary:
See also:
- UK trust gifts money to charity: exclusion from settlements legislation
- If a UK settlement gives qualifying income to a charity in the tax year in which it arises, the attribution rules in s.624 and s.629 do not apply (s.628, s.630).
- Similarly if charity is entitled to qualifying income under the terms of the trust.
Qualifying income
s.628(2)
Legislation: ITTOIA s.628;
Cases:
HMRC manuals:
Commentary:
See also:
Gift aid for money gifts
- Relief for qualifying donations to charity
Gift
- Individual payment to charity must be a "gift".
- Corporation tax does not require a gift, only a payment that is a qualifying payment.
- "Gift" connotes voluntary donation (Osborne, §38).
- "[41] If the contributions are mandatory (and hence not voluntarily made) they cannot qualify for Gift Aid. Section 25 (1) FA 1990 requires there to be a “gift”, which by its very definition requires a voluntary disposition." (Osborne)
- The original decision to make the payment(s) must be voluntary, but the actual payments can, presumably, be made under a binding covenant (HMRC accept this at Guidance §3.4.7).
- Payments for goods or services are not gifts (HMRC Guidance §3.4.6).
- HMRC examples:
- Payment of school fees for a specific person.
- Purchase of jumble sale items.
- Payment for admission to events.
- "In the same way, a payment described as a ‘minimum donation’ or a ‘donation’ to attend an event is not a freewill payment. " (§3.43.4). Suggested donations can be acceptable (§3.43.6).
- Payment for raffle or lottery tickets (even if prize is small or of little value).
Membership fees as gifts
- HMRC accept that some membership schemes/contracts can be gifts in some caes (Guidance §3.13.4).
- The exclusion for certain rights of access as associated benefits strongly suggests that some membership fees can be gifts.
- "Membership subscriptions that secure the right to personal use of facilities or services are not gifts." (Guidance, §3.37.6).
- Annual subscription to masonic lodge not a gift in Osborne.
- Part of the subscription was required to be passed on by the lodge to the Grand Charity.
- Held: entire subscription including charity element compulsory in order to retain membership - no gift element (§37).
- Membership fees for registered CASCs are not gifts (s.430(2)).
Donor imposing restrictions on use of gift
- Query the extent to which the charity is bound by any restrictions the donor seeks to impose.
- If the charity does agree, in a binding way, to the restrictions, query whether there is a level of restrictions that means it is not a gift (or not a gift to the charity).
- E.g. has the charity essentially agreed to act as the donor's agent?
- "[19.5] A restricted donation is not an agency arrangement. A charity accounts for the receipt of a restricted donation as principal because the charity’s trustees control how it is subsequently spent." (Charities SORP)
Gift "to a charity"
- Gift must be to the charity rather than to another person who makes their own payment to charity.
- Payment for the benefit of the charity, e.g. discharging its debts, is probably a payment to charity.
- "It is common ground that the words “to a beneficiary” cannot be construed literally. They must include, for example, payment of a minor's school fees or payment of his debts." (Inglewood)
Payments to intermediaries
- If the donation is given to an intermediary who acts as nominee for the charity and must pass it on, the gift is still to the charity (Guidance §3.36).
- "[8]...The obvious purpose of the section is to ensure that money (or property) which the benefactor has specified should pass to a charity accompanies it into the entity into which the charity has been merged notwithstanding that the benefaction is not to take effect until a time which postdates the merger. That purpose is in my view equally engaged whether the route of benefaction runs directly to the donee or a trustee is interposed with an obligation to confer the benefit using the money (or property) provided by the benefactor." (Re Longman re Charities Act 1993, s.75F)
- If the intermediary has discretion as to where the funds end up, the intermediary is the donee and must be a charity in order for the donor to claim gift aid (§3.36.3).
- HMRC say that the intermediary will be required to pass on the benefit of the tax associated with the gift aid payment (§3.36.4).
Relief:
(1) Gift treated as made after deduction of income tax at the basic rate (s.414(2)(a)).
(2) Basic rate + higher rate limit for individual increased by amount equal to amount of gift grossed up at basic rate (s.414(2)(b), s.415).
- Limits in Scotland also increased.
- No relief for NICs, so trading deduction may be better where available.
Identity of donor (joint accounts)
- HMRC say charity is entitled to assume donation is from person who has made gift aid declaration (Guidance §3.32.1).
Scottish and Welsh taxpayers
- See s.414A if devolved basic rates differ.
Carry back
- Donor can elect to treat the gift as made in the previous tax year subject to the conditions in s.426.
Legislation: ITA s.426 s.430;
Cases:
Inglewood v. IRC [1983] STC 133, CoA;
Osborne v. HMRC [2010] UKFTT 368 (TC), Judge Petherbridge;
Re Longman [2012] EWHC 666 (Ch), David Donaldson QC;
HMRC manuals:
Commentary: Kessler Charities, Ch 15;
See also: Charities SORP 2026;
- Qualifying donations: (a) money, (b) no condition as to repayment, (c) not payroll giving, (d) not deductible
(A) Gift is payment of a sum of money (s.416(2))
- Can be in cash, cheque, direct debit, card, standing order (HMRC Guidance, §3.4).
- Cheque gift only complete when it clear (§3.4.3).
- If there are transaction fees, HMRC do not treat these as reducing the amount of the gift but as charitable expenditure of the charity (§3.4.4).
- Can be in foreign currency (convert to sterling at date donation made) (§3.4).
- Cryptoassets are not considered to be currency or money (§3.4).
- Waiver of a refund or loan repayment can be considered the donation of a sum of money (§3.4.5; §3.45).
- Query whether HMRC insist on the legal formalities for waiver of a debt being complied with (compare guidance with Battle Baptist Church).
- Declaration of trust over sum of money in favour of charity is probably payment to charity:
- "[8]...The obvious purpose of the section is to ensure that money (or property) which the benefactor has specified should pass to a charity accompanies it into the entity into which the charity has been merged notwithstanding that the benefaction is not to take effect until a time which postdates the merger. That purpose is in my view equally engaged whether the route of benefaction runs directly to the donee or a trustee is interposed with an obligation to confer the benefit using the money (or property) provided by the benefactor." (Re Longman re Charities Act 1993, s.75F)
- Assignment of a right to payment to the charity is not itself payment of a sum of money.
- But direct the debtor to pay the money to the charity may be a payment of the money the charity by the creditor.
- "[38] I consider that the position is different as regards the £50,000. The respondents conceded that if a gift took the form of a direction by a creditor to his debtor to repay a debt and to pay the money to EBSF, that would constitute a payment of a sum of money. To be legally pedantic, I think that the position might well be technically different if the creditor assigned the debt, and then as a separate matter the debt was later discharged, though in practice the two might be treated as having the same effect..." (Simpson)
- For the distinction between discharging a debt incurred by the charity acquiring goods/services (payment of sum of money to charity) v. paying another to provide a benefit to charity (not payment of sum of money to charity) see F1. Employee monetary benefits.
(B) Payment not subject to any condition as to repayment (s.416(3))
- Rights to refunds under consumer law are not regarded as a condition as to repayment (Guidance, §3.13.4).
- Other refunds cannot be as of right - must be at discretion of charity.
- E.g. a right to a refund if a fundraising target is exceeded may be a problem.
- "[227] Condition B requires there be no “condition as to repayment.” This is an ordinary English expression to be construed broadly. The context is that it means repayment to the person making the payment. Contrary to Ms Hughes’ submission it does not stretch to onward payment to a different person. Had the section meant that it would have been very easy to say so. This condition exists to ensure that a person does not make a gift, claim tax relief and get the money back." (Harvey)
(C) Not payroll giving (s.416(4))
- The payment must not fall within ITEPA 2003, s.713(3).
(D) Payment not deductible (s.416(5))
- Payment must not be deductible in calculating donor's income from any source.
- For instance, membership of some professional organisations may be a gift but may also be deductible for trading purposes (Guidance, §3.37).
Legislation: ITA s.416;
Cases:
Battle Baptist Church v. IRC [1995] STC (SCD) 176;
Simpson v. HMRC [2009] STC (SCD) 226), Judge Nowlan;
Re Longman [2012] EWHC 666 (Ch), David Donaldson QC;
Harvey v. HMRC [2024] UKFTT 1098 (TC), Judge Rudolf KC;
HMRC manuals:
Commentary:
See also:
- (e) No associated acquisition of property by charity from donor/connected company
General rule
- If:
(1) The payment is conditional on, associated with or part of an arrangement involving;
(2) The acquisition of property by the charity;
(3) From the donor or a person connected with the donor
Then: the donation is not a qualifying donation (s.416(6)).
- Original purpose of rule was to prevent donor selling asset to charity + donating the purchase consideration (in whichever order), thereby sidestepping the limit to gifts of money.
- HMRC have not interpreted it as restricted to this type of situation (see Anston).
Loans and investments by charity
- If the donation is associated with a loan by the charity to the donor/connected person, the acquisition of the debt is an associated acquisition of property.
- Similarly if the charity makes an investment in a company and acquires shares.
- HMRC have been known to take this point where the loan is to (or investment is in) a subsidiary wholly owned by the charity, but the donor + trustees are connected, such that the company is connected.
Legislation: ITA s.416;
Cases:
Harvey v. HMRC [2024] UKFTT 1098 (TC), Judge Rudolf KC;
Anston Investments Ltd v. HMRC [2026] UKFTT 483 (TC), Judge Beare;
HMRC manuals:
Commentary:
See also:
- (ea) Not in substance waiver of sums due to individual that qualified for social investments relief
Actual waiver of entitlement
- If:
(1) The payment is by way of waiver of the individual's entitlement to sums due to the individual from the charity
(2) The sums are due in respect of an amount advanced to the charity; and
(3) The sums were ones on which a person has obtained relief under ITA Part 5B (social investments relief);
Then, the payment is not a qualifying donation (s.416(6A)).
In substance waiver of entitlement
- Same rule applies if the payment in substance amounts to waiver of such a sum.
Legislation: ITA s.416;
Cases:
HMRC manuals:
Commentary:
See also:
- (f) No associated benefits in excess of restrictions
General rule
- Donation not qualifying if there are benefits associated with the gift (s.416(7)).
- Unless the restrictions on benefits are not breached.
- Even a small benefit in excess of the restrictions takes the whole gift outside of gift aid.
- Consider splitting payments into multiple payments (Guidance §3.25).
- One payment for no benefit.
- The other payment for the benefit.
- Donor needs to be aware of the split.
Benefit (including right to receive a benefit)
- "A benefit is any item or service provided by the charity or a third party to the donor or a person connected with the donor and which is associated with a donation." (§3.18.2).
- "A right to receive a benefit, is also a benefit, whether or not the right is exercised." (§3.18.2).
- Probably no benefit in making a "painless donation" by directing loan repayment be made to charity (Simpson, §41).
- Reimbursement of the donation from a third party unconnected with the charity would be a benefit.
- But payment to the donor prior to the donation may not be received in consequence of the donation.
- See Guidance §3.19 on acknowledgment and thanks.
- Naming a building etc. after donor not normally considered a benefit (§3.19.8).
Benefit associated if received in consequence of making gift
- Benefit is associated with gift if received by donor in consequence of making the gift (s.417).
- Also applies to benefits received by persons connected with donor.
- E.g. company makes donation and directors receive benefit (Guidance §3.13.4).
- Loan by charity to company connected with donor was associated benefit in Harvey.
Connected person
- Spouse/civil partner.
- Brother/sister + spouses.
- Ancestors/descendants + spouses.
- Company under control of donor/connected persons.
- Query whether a benefit to the trustees of a charitable trust which is connected with the donor (and quite possibly the original trust) can lead to denial of relief.
In consequence of
- In another context, has been interpreted as meaning "proximately caused by" (Gatwick, §115).
- Do we look at each donation individually or all donations by all persons collectively?
- Query whether a benefit is on consequence of a donation if a facility offered by a charity (e.g. hospice) depends on donations to be available generally, but could + would have been provided irrespective of this donor's donation.
- HMRC appear to take the view that the charity must have been able to provide the benefit independent of donations (see their education example Guidance §3.34.4).
- "[3.34.7] Where there’s no fee structure or only nominal fees are charged, insufficient to enable the trust to operate without additional donations the additional donations give rise to a benefit."
- Must the benefit be directly in consequence of the donation or is indirectly sufficient?
- Does the person providing the benefit need to decide to provide it in consequence of the donor's donation (i.e. a quid pro quo)?
- For instance, if the charity has general admission criteria for a benefit that the donor/connect person meets, is it relevant that historic donations are the reason why the benefit is available at all?
- E.g. admission to a church that is only open because of donations.
- Approach should be consistent with the fact that the donor (as well as charity) needs to be able to know whether gift aid is available.
- HMRC say: "In other words, there has to be some connection between the fact that the donor has made a donation and the benefit being received." (Guidance §3.18.4).
- But this not a "connection" test.
Variable limit on benefits
- Restrictions are breached as follows (s.418(2)):
- £100 or less: 25% of the donation.
- More than £100: £25 + 5% of excess over £100.
- If benefit associated with gift relates to period of less than 12 months, there is a procedure to potentially find the annual equivalent (s.419).
Total value limit on benefits
- Restrictions are breached if total value of benefits associated with:
(1) the gift; and
(2) each relevant prior gift (prior qualifying donations by the individual to the charity in the same tax year).
Exceeds £2,500 (s.418(3)).
Valuing the benefit
- Value to the recipient, not cost to the charity (Guidance §3.23.3).
- If sold to the public, sale price.
- Otherwise, any method HMRC deem fair and reasonable (Guidance §3.23).
Disregard of admission rights
- A benefit is disregarded if (s.420).
(1) It benefits the individual donor + their family.
(2) Authorises admission to premises which the public are admitted on payment of an admission fee.
(3) Consists of waiver or reduction of that admission fee.
(4) The opportunity to make the gift + benefit is available to the public.
(5) The right of admission is granted for the purpose of viewing a property preserved/created by the charity for charitable purposes.
(6) Either:
(a) the right of admission applies during a period of at least 12 months at all times at which the public are admitted; or
- see s.421.
(b) a member of the public could purchase the same right + the amount of the gift is at least 10% more than public admission price.
Legislation: ITA s.416, s.417, s.418, s.419;
Cases:
Simpson v. HMRC [2009] STC (SCD) 226), Judge Nowlan;
Harvey v. HMRC [2024] UKFTT 1098 (TC), Judge Rudolf KC;
Gatwick Investment Ltd v. Liberty Mutual Insurance Europe SE [2026] UKSC 14);
HMRC manuals:
Commentary:
See also:
- Donor must give charity (or intermediary) gift aid declaration relating to gift
- Donation is not qualifying unless donor gives the charity a gift aid declaration relating to the gift (s.416(1)(b)).
- Declaration can be given an intermediary representing the charity.
- Intermediary = person authorised by either or both of charity/donor to give/receive the declaration (s.416(1A)).
- Gift aid declaration is defined in s.428.
- See Guidance §3.6.
- Need adequate records to show clear link between donation and gift aid declaration (§3.6.5).
Legislation: ITA s.416, s.428;
Cases:
HMRC manuals:
Commentary:
See also:
Tainted donations: denial or loss of relief
- Charge on donor where tax paid by donor less than tax treated as paid by charity
- If:
(1) The tax treated as deducted from qualifying donations made by an individual in a tax year under gift aid;
Is less than
(2) The total income tax and CGT to which the individual is charged for the tax year.
Then:
(1) Certain reliefs are withdrawn so far as necessary to make up the shortfall (mainly personal allowance) (s.423);
(2) A charge to tax arises to cover any remaining shortfall (s.424).
- Benefit of certain double taxation reliefs retained (s.424(2)).
Legislation: ITA s.423 - 425;
Cases:
HMRC manuals:
Commentary:
See also:
- Scope
Scope:
- Donation is tainted if it is a relievable charity donation and condition A, B and C are met (originally or later) (s.809ZJ).
- Relivable charity donations are ones eligible for relief under the provisions in s.809ZI(4).
- Or on which charity is entitled to claim repayment of tax (e.g. income distribution to charity from UK discretionary trust - see below).
Charity
- Includes a registered community amateur sports club (s.809ZR).
Income to charity under UK settlement
- Treated as a gift by the trustees (s.809ZI(5)).
2026 changes
- Apply to relievable charitable donations on or after 6 April 2026 (FA 2026, s.56).
- Apply to associated donations made on or after that date if associated with tainted donation made before that date (s.56(9)).
Legislation: ITA s.809ZJ; s.809ZI, s.809ZR; FA 2026, s.56;
Cases:
HMRC manuals:
Annex viii A: tainted charity donations on or after 6 April 2026;
Commentary:
See also:
- (A) Arrangement with donor (or connected person) + donation would not have been entered into independently of each other
Condition A (s.809ZJ(2))
- (a) A linked person enters into arrangements (before or after donation);
- Arrangement can be informal understanding between 2 parties that something will be done etc. (HMRC guidance, §6.2).
- Donation itself is not an arrangement.
- (b) It is reasonable to assume that donation + arrangements would not have been made/entered into independently of one another.
Linked person: donor or connected person
- Donor or person connected with donor (s.809ZJ(3)).
- Connected person: see s.993 as adjusted by s.809ZQ(2).
- Beneficiary of settlement is connected with trustee + settlor.
- Persons living together as spouses are connected.
- Close company includes non-UK resident company that would be close if UK resident.
- Test connection at any time after the earliest of the donation or entering into/implementing the arrangement (s.809ZJ(4)).
Interdependence (one way dependence not sufficient)
- Must be the case that (it is reasonable to assume that) both:
- Donation would not have been made without the arrangements; and
- Arrangements would not have been entered into without the donation.
- Thus, if donation would not have been made unless arrangements were entered into, but arrangements would have been entered into with or without donation, interdependence does not exist.
- This is demonstrated by Example 2, below (donation following donor's son receiving treatment + in anticipation of further treatment - the treatment would have been provided with or without the donation).
- HMRC's guidance says:
- "If a donation is made and there are no arrangements in place, or any arrangements that are entered into are not dependent upon, or connected to, the donation being made, ‘Condition A’ will not be satisfied. The donation will not be a tainted charity donation." (§5.1)
- Legislation does not ask whether the arrangement + donation are "connected".
Establishing interdependence
- Assess whether it is reasonable to assume interdependence based on either or both of (s.809ZJ(2)(b)):
(i) Likely effects of the donation + the arrangements (viewed at the time of the later of the two).
(ii) Circumstances in which the donation is made + circumstances in which the arrangements are entered into.
- Read literally if considering both effects + circumstances would not make it reasonable to assume interdependence, but considering either alone would, the test is met.
- HMRC seem to say the above factors to be taken into account:
- "The legislation requires a judgement to be made as to whether it’s reasonable to assume that a donation and arrangements would or would not have been made independently of each other. The judgement must take into account the likely effects of the donation and the arrangements and the circumstances surrounding the donation and the arrangements entered into." (§5.3)
Example 1: priority in return for donation
- HMRC give the following example:
- "a charitable health provider may offer donors a priority treatment service, at a reduced cost, if their donations exceed £100. A donor who gives more than £100 with a view to making use of this priority treatment service would satisfy ‘Condition A’ as the donor would have made a donation as part of an arrangement to make use of the charity’s priority treatment service." (§5.3)
- Note the importance of the donation being made with a view to obtaining such priority: donation would not made but for priority + priority would not be provided without donation = interdependence.
- Query whether "priority" is financial assistance (condition B).
- Query why this gift would not fail the normal "associated benefit" test for gift aid in any event.
Example 2: donation to hospital out of gratitude, even if further treatment received
- "A donor gives £100,000 to a hospital (a charity) in recognition of the excellent treatment received by his son during his stay. The hospital subsequently writes to thank the donor for the unexpected donation.
In this example, the donation is not affected by the tainted charity donations rules. There was no arrangement in place for the hospital to provide any services in connection with the donation, so ‘Condition A’ does not apply. Even if the donor’s son (or another person connected to the donor) were to receive further treatment at the hospital, the absence of an arrangement means the donation remains unaffected." (HMRC guidance, §6.2).
- Position would be different if donor got reduced cost treatment as a result of donation (§6.2), but query why that would not be caught by the associated benefit rules. HMRC posit "more complex arrangements to distance the donation from the benefit of treatment" but do not explain what they might be.
Legislation: ITA s.809ZJ, s.809ZQ;
Cases:
HMRC manuals:
Annex viii A: tainted charity donations on or after 6 April 2026;
Commentary:
See also:
- (B) Donor (or connected person) receives financial assistance from charity in connection with the arrangement
Condition B
- Linked person who is not a charity receives financial assistance
(1) Under or in connection with the arrangements +
(2) Directly or indirectly from the charity to which the donation is made.
- Or from a connected charity.
- Note that the person who receives the financial assistance need not be the person who entered into the arrangement.
- So donor could enter into the arrangement and a connected person could receive the financial assistance.
- Condition B became an "outcome" test instead of a "purpose" test from 2026.
Financial assistance
- Legislation expressly requires something that is "assistance" (rather than a benefit) and does not include all assistance but only "financial" assistance.
- Includes loan, guarantee, indemnity or any form of investment (s.809ZJ(8)).
- Does not matter whether on arm's length terms (s.809ZJ(8), Guidance, §8.2).
- HMRC give an example of a loan to a connected company in return for a donation (§8.3).
- Query whether priority in receiving medical treatment is "financial assistance" (HMRC Guidance, §5.3 seems to consider it is; Kessler suggests not).
- Query whether an ordinary commercial contract (e.g. building) on arm's length terms is "financial assistance".
- See HMRC's example at §15 where they specifically say the building contract it on non-arm's length terms.
Disregarded financial assistance (s.809ZL)
- Payments for work carried out for charity (must be on arm's length terms).
- Example: "An individual makes a qualifying Gift Aid donation to a charity under an arrangement in which the charity engages the individual to deliver a training session for volunteers. The charity pays the normal market rate for the donor’s services." (Guidance, §9.1).
- Benefits associated with a gift for gift aid purposes.
- In practice this will cover cases where the associated benefit is within the gift aid limits. If the benefit exceeds those limits, the donation will not qualify for gift aid and not be a relievable donation, so tainting is not relevant.
- See guidance, §17.
- Donation is of shares where the benefit reduces the relievable amount.
- Donation is of trading stock and benefit is attributable to making the gift for the purposes of ITTOIA s.109/CTA 2009 s.108.
Charity passes funds to another charity, which is connected with the donor
- Previously there was a disregard where the financial advantage was obtained by a person who applied it for charitable purposes only.
- That has been repealed, so such arrangements can be caught.
Under or in connection with
- Guidance says: "It looks at the arrangements entered into by the linked person and whether as a result of those arrangements a linked person, who is not a charity, receives financial assistance directly or indirectly from the charity (or a connected charity) to which the donation was made." (§7.1).
Connected charity
- A charity which is connected with that other charity in a matter relating to the structure, administration or control of either charity (s.809ZP).
- Query what level of connection/overlap in relation to these matters (e.g. trustees in common) is required.
- Non-UK charities are not necessarily charities for tax purposes since 2023 (F(No.2)A 2023, s.344 amending FA 2010, Schedule 6, para 2).
- See definition of charity, above.
Legislation: ITA s.809ZJ; s.809ZL;
Cases:
HMRC manuals:
Annex viii A: tainted charity donations on or after 6 April 2026;
Commentary: Kessler Charities Ch 7;
See also:
- (C) Exclusion where donor is charity-owned company/linked relevant housing provider
- Exclusion applies if donor is:
- Qualifying charity-owned company; or
- Relevant housing provider linked with the charity to which the donation is made.
- See s.809ZJ(7) (8) for definitions.
- Guidance §10.
Legislation: ITA s.809ZJ;
Cases:
HMRC manuals:
Annex viii A: tainted charity donations on or after 6 April 2026;
Commentary:
See also:
- Charity passes funds to another charity selected by donor + with which donor is connected
- Previously there was a disregard where the financial advantage was obtained by a person who applied it for charitable purposes only (s.809ZL(2)).
- See Old Guidance, §9.
- That has been repealed, so such arrangements can be caught.
- Donor-advised charities/voucher charities will need to be careful.
Legislation: ITA s.809ZJ; s.809ZL;
Cases:
HMRC manuals:
Commentary:
Annex viii: tainted charity donations on or before 5 April 2026;
See also:
- Denial or clawback of relief
Loss of income tax relief (tainted in same year as donation)
- If a relievable charity donation becomes tainted in the same tax year in which it is made, gift aid is not available (s.809ZM(2)).
- Not a qualifying donation when calculating entitlement to personal allowance (s.809ZM(6), ss.35 and 58).
- But the charity is still treated as receiving the donation net of basic rate tax and that tax is treated as income tax paid by the trustees (s.809ZM(7)(b); s.520; Guidance §14.1).
Clawback of income tax relief (tainted in later tax year)
- If a relievable charity donation becomes tainted in a later tax year the benefit of the relief is clawed back (s.809ZMA).
- Clawback is based on the difference between actual income tax liability in donation year and what it would have been if the donation had become tainted in that year.
- If there was no benefit (i.e. the donation did not lower the donor's liability to income tax), nothing is clawed back.
- Person liable: the person who made the donation (s.809ZMA(3)).
- Interest on clawback: applies from 1 February in tax year following donation year (s.809ZMA(4)).
- Guidance §12.
Freestanding income tax charge where donation is or becomes tainted (negating gift aid benefit)
- In addition to the donor losing the benefit of gift aid relief to them, the benefit to the charity is also negated (i.e. the grossing up and potential recovery of income tax).
- This is achieved by imposing an income tax charge equal to the amount of income tax the charity is/was entitled to repayment of in respect of the donation (s.809ZN(2); Guidance §14.1).
- Persons liable: donor, linked persons and charity/connected charity are jointly and severally liable.
- Charity only liable if it was party to the arrangements + ought reasonably to have been aware that condition was or would be met (s.809ZN(5)).
- "A charity would be ‘aware’ of the arrangements where the managers or persons in a position of authority or control of the charity had knowledge of the arrangements. Merely receiving a tainted donation would not on its own mean that a charity was ‘party to’ or ‘aware of’ such an arrangement." (Guidance, §15.1).
- Donor liable to income tax, even if a UK resident company.
- Tax is charged in the year in which donation becomes tainted (s.809ZN(3)).
Legislation: ITA s.809ZM; s.809ZMA; s.809ZN;
Cases:
HMRC manuals:
Annex viii A: tainted charity donations on or after 6 April 2026;
Commentary:
See also:
INCOME TAX (CHARITY)
- Donations made in accordance with the arrangements but not themselves tainted: denial of relief
-If:
(1) There is a tainted donation.
(2) Other donations are made in accordance with the arrangements that made the donation tainted.
Then: relief is similarly denied/clawed back in relation to the other donations (s.809ZMB).
- Guidance, §13.
Legislation: ITA s.809ZMB;
Cases:
HMRC manuals:
Annex viii A: tainted charity donations on or after 6 April 2026;
Commentary:
See also:
- Qualifying donations are liable to income tax, treated as received net of basic rate tax, but can qualify for exemption (and repayment of tax)
General charges
- Donations are not trading income
Specific charge
- Income tax is charged on qualifying donations to charitable trusts by individuals (s.521).
- Charge is on the grossed up amount.
- See corporation tax for charitable companies.
Deemed payment of basic rate tax
- Charitable trust treated as receiving donation after deduction of income tax at basic rate, which is treated as tax paid by the charitable trust (s.520).
Exemption of income
-
Repayment where donation made by individual
- See Guidance §6.1.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Sponsorship payments
- "The direct tax treatment of payments received by charities under sponsorship arrangements will depend on the nature of the arrangement. Just because a sponsor derives good publicity or public relations benefits from payments to charity, does not automatically mean that payments by the sponsor are trading income in the hands of the charity."(Guidance Annex iv, §22)
- "If the charity does not provide goods or services in return for payment, sponsorship payments will normally have the character of charitable donations rather than trading income in the charity’s hands. The fact that the business sponsor itself takes steps to publicise or exploit the affinity with the charity will not change the treatment of the payments in the hands of the charity, unless the charity also publicises the affinity itself." (Guidance Annex iv, §22)
Legislation:
Cases:
HMRC manuals:
Annex iv: trading and business activities — basic principles;
Commentary:
See also:
Tainted donations
- Income tax charge to negate benefit of gift aid (charity potentially liable)
- As described above in relation to the donor, where gift aid is lost/clawed back, the donation continues to be treated as received net of basic rate tax and the charity is entitled to credit for that tax, but when the donation becomes tainted, an income tax charge arises.
- Donor and certain others liable for this tax.
- Charity jointly and severally liable if it was party to arrangements + ought to have been aware of tainting.
Legislation: ITA s.809ZM; s.809ZMA; s.809ZN;
Cases:
HMRC manuals:
Commentary:
See also:
CORPORATION TAX (DONOR)
Corporate gift aid relief
- Deduction for qualifying money donations to charity
- Qualifying charitable donations are deductible from the company's total profits for corporation tax purposes (s.189).
Associated benefits and acquisitions
- Based on associated of the company rather than connected persons.
Legislation: CTA 2010, s.189;
Cases:
HMRC manuals:
Commentary:
See also:
- Donation of profits by charity owned subsidiaries (carry back election if paid within 9 months)
General
- Need to make sure the payment is not by way of dividend (Guidance, §3.14.4).
- Have 9 months from end of accounting period in which to pay the amount to qualify as donation for that period (§3.14.7).
- Must make election within 2 years of end of accounting period (§3.14.9 - §3.4.10).
- "This allows a company owned by a charity or CASC sufficient time to calculate its Corporation Tax profits and, if it wishes, to pay the parent charity or CASC an amount equal to its entire profit and reduce its Corporation Tax liability to nil."
- Companies owned by 2 or more charities can use Gift Aid donations to donate their profits (§3.14.5).
- Same applies to companies owned by CASC (§3.14.6).
Company limited by guarantee
- 9 month carry back can apply as long as the only persons entitled to participate in company's profits and share in assets when wound up are charity/CASC or company that itself satisfies the requirement for charitable ownership (§3.14.13).
Partly owned by charities
- 9 month carry back does not apply (Guidance §3.16).
- So must donate in period.
Donating estimate profits
- Estimated donations allowed, with the excess to be repaid if it exceeds actual profit.
- Not regarded as a condition as to repayment as long as excess repaid within 12 months (Guidance §3.15.1).
- Only applies if wholly owned by charity.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Must not be a dividend or distribution of profit
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
Tainted donations
- Denial or clawback of relief
- Equivalent provision made as in relation to income tax.
Legislation: CTA 2009, 939A - 939I;
Cases:
HMRC manuals:
Commentary:
See also:
CORPORATION TAX (CHARITY)
- Gift to charitable company treated as liable to corporation tax
- If
(1) A company which is not a charity
(2) Makes a gift of a sum of money
(3) The recipient is a charitable company;
Then: the gift is treated as chargeable to corporation tax (s.473).
- Does not matter whether the paying company was entitled to corporate gift aid.
- Charity will normally be entitled to relief for this charge unless it has non-charitable expenditure.
Legislation: CTA 2010, s.473;
Cases:
HMRC manuals:
Commentary:
See also:
- No repayment of tax on gifts from a company
- Gift aid payments by companies are paid gross, the donor gets a deduction for the full sum.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
CAPITAL GAINS TAX: GIFT AID (DONOR)
Tainted donations
- Denial or clawback of relief
- Equivalent provision for denial and clawback of relief in relation to CGT under s.257 for tainted donations (see s.257A).
- Also provision for associated donations to be denied relief (s.257B).
- See above on meaning of tainted donations.
Legislation: TCGA s.257A, s.257B;
Cases:
HMRC manuals:
Commentary:
See also:
INHERITANCE TAX
- Exemption for gift to charity/registered club
- Transfer of value is exempt to the extent that the value transferred is attributable to property which is given to charity or a registered club (s.23).
- Must not be a possibility of the property becoming applicable for non-charitable purposes (s.23(5)).
Gifts by close companies
- The special charging rules apportion the transfer of value among the participators.
- Exemption can apply to that deemed transfer of value.
- "Transfers by close companies may give rise to capital transfer tax. The liability is calculated by apportioning the value transferred among the participators of the company making the transfer, and the [£3,000] annual exemption applies to the value allocated to each individual participator. So far as the company's transfer of value relates to property given to charity or to the national institutions or bodies mentioned above, then the exemptions for gifts to those bodies extend to the amounts apportioned to the individual participators. Capital transfer tax does not apply to gifts by incorporated bodies other than close companies." (Revenue Press Release 1981)
Legislation: IHTA s.23;
Cases:
HMRC manuals:
IHTM14853 - Lifetime transfers: transfers by close companies: exemptions;
Commentary:
See also: Revenue Press Release 1981;