Charities

 

Donor benefits

 

For donations to charities to be eligible for Gift Aid tax relief there are limits on the value of benefits that both individuals and companies can receive from the charity as a result of making those donations. For some time it has been felt that the maximum benefit for donations over £1,000, which is currently 5% of the donation with an overall cap of £500, was  restrictive in terms of large donations.

 

Therefore, for donations made by corporate donors in accounting periods ending on or after 1 April 2011 and for individuals on donations made from 6 April 2011, there will be an increase in the benefit limit for donations of more than £10,000 to a maximum cap of £2,500 whilst still limiting the maximum value of benefits to 5% of the donation.

 

The aim is to encourage significant donors to give more to charity. It will enable charities who wish to do so to thank their larger donors in a more generous way without the donations being disqualified from Gift Aid

 

 

Avoidance

 

The anti-avoidance legislation on substantial donors to charities was introduced in 2006 to counter known abuses of charity tax reliefs.  However, since the introduction of that legislation charities have made representations that the existing legislation creates administrative burdens, catches unintended transactions and discourages larger gifts.

 

The replacement rules will deny tax relief on donations only where the donor is party to arrangements whose main purpose is or includes obtaining a financial advantage for the donor or a connected person, directly or indirectly from the charity.

 

The new rules will disapply the substantial donor rules in relation to payments made by a charity on or after 1 April 2011.  All gifts regardless of size will potentially be within its scope.  The concept of “substantial donor” will thus disappear and be replaced by the term “tainted charity donations.”  There will be a transitional period of two years before the existing legislation is repealed.

 

Another key change in approach is that where a gift is deemed to be tainted under the new rules, tax relief is denied and the donor (as opposed to the charity) will be the primary target for recovery of any relief that should not have been given.

 

 

Small donations

 

From April 2013 charities that receive donations of £10 or less will be able to apply for a Gift Aid style repayment without the need to obtain Gift Aid declarations for those donations. There will be a cap on the amount of small donations which this repayment can be claimed of £5,000 per year, per charity.

 

In order to qualify for this new relief charities will need to have been recognised by HMRC for Gift Aid purposes for at least three years, have been operating Gift Aid successfully and also have a good tax compliance record.

 

 

 

Online filing

 

In 2012-13 HMRC will introduce a new online system for charities to register their details for Gift Aid and to make Gift Aid claims. As a first step HMRC will be publishing four new “intelligent” forms for charities to use. These forms will contain automatic checks to improve the accuracy of information and reduce administrative burdens. HMRC will also be working with the charity sector to develop a supporting electronic Gift Aid database for Gift Aid declarations.

 

 

In-year repayments

 

In the autumn of 2011 draft Finance Bill clauses will be published that will give statutory effect to an existing extra statutory concession  whereby currently HMRC makes certain repayments to charities that make a claim for repayment outside a tax return (“in-year claims”).

 

 

Gifts of art

 

Consideration is being given by the Government to introducing a tax reduction for taxpayers who donate a work of art or historical object of national importance to the State. A consultation on this matter will take place over the summer.

 

 

Tax repayments

 

The self assessment Donate scheme whereby taxpayers are able to redirect tax payments due to them to a charity of their choice is to be withdrawn for tax years 2011-12 and subsequent years. Also, any repayments made in respect of earlier years must be made by 5 April 2012.

 

 

Inheritance tax

 

The Government has announced that for deaths occurring on or after 6 April 2012 there will be a reduced rate of inheritance tax (“IHT”) where 10% or more of a deceased person’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. The IHT rate will be reduced from 40% to 36%.

 

A consultation document on the detailed implementation of this measure will be issued before the summer.