Posted on 20th July 2008
HMRC has launched a consultation on substantial donor legislation to address the aim of preventing the abuse of tax relief without “discouraging charitable giving or creating unnecessary administrative burdens”.
Anti-avoidance legislation was introduced in Section 54 of the Finance Act 2006 to target instances of abuse by major donors. It is commonly referred to as the Substantial Donor (SD) legislation. However the legislation has raised a number of concerns and is catching a variety of innocent transactions by donors to charities, including foundations.
A working party comprised of Philanthropy UK, Charity Tax Group, the Institute of Chartered Accountants of England and Wales and Stewardship has been advocating the repeal of the legislation for the past year.
As Philanthropy UK has previously highlighted, current substantial donor rules are very wide-ranging and are proving prohibitive to donors and charities alike. Essentially, if a donor makes a relievable gift of more than £25,000 in a year to a charity, and the donor or a ‘connected person’ receives any benefit from that charity, then the charity could incur a tax liability on the donation.
The aim of the consultation is to “Ensure that the substantial donor regime best reflects the needs of both government and the charitable sector. That is one that deters avoidance but that exempts all transactions that a charity has cause to carry out in the course of its charitable activities and which minimises the administration burden for charities.”
The working party met on Friday to discuss the consultation document but believes that there some significant issues, such as the question of ‘connected persons’, that are not addressed in the consultation paper. The working party expressed “a lot of concern about disproportionate regulation” and will be discussing the need for a review of the scope of the regulatory regime with the Treasury, the Charity Commission and HMRC.
How to respond
The consultation document includes a summary of the new draft legislation that Government is proposing as well as draft guidance which gives an indication of how the revised rules would work in practice.
The closing date for the consultation 7 October 2008, and the consultation is accessible from the HMRC website.
The working party is preparing a briefing paper which will be available shortly from Philanthropy UK’s website.
- Philanthropy UK would be grateful to hear of any issues our readers may have experienced with this legislation. Please contact us at info@philanthropyuk.org.
Substantial donor legislation: background and definitions
A person is a Substantial Donor in respect of any ‘chargable period’ (tax year) if the charity receives tax relievable gifts of either £25,000 in a 12-month period or £100,000 over a period of six years.
A connected person includes:
- Spouse or civil partner, and their relatives
- Spouse or civil partner of relatives, and relatives of the donor’s spouse or civil partner
- Business partners and their spouses or relatives
- UK charitable trusts (and their trustees) settled by the SD
- UK or overseas charities with a majority of trustees who are connected to the donor
Some of the transactions included are
- Sale or letting or exchange of property
- Provision of services
- Provision of financial assistance (by either party)
- Payment of remuneration by the charity
- Investment into donor’s business by the charity
