Charities—tax

Charities are given favourable treatment when it comes to personal and capital taxes. Each tax will have its own requirements which must be satisfied in order for favourable tax treatment to apply.

Tax treatment of a charity

Charities are not exempt from tax, but they do benefit from a number of specific tax reliefs. A charity does not need to be registered with the Charity Commission to qualify for tax relief. However, before a charity can take advantage of these tax reliefs and make tax repayment claims, it needs to be formally recognised by HMRC as charitable.

Most income and gains received by charities are exempt from income tax, capital gains tax (CGT) and corporation tax.

However, charity tax exemptions are restricted by anti-avoidance provisions, such as in the case where a charity's income and gains are not applied solely for charitable purposes.

See Practice Note: Tax treatment of a charity.

Tax compliance for charities

A charity must complete and submit tax returns in certain specific circumstances, such as if served with a notice requiring it to file a return or if it has taxable income, gains

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All in? Court confirms when a settlement is 'made' for the purposes of excluded property (Accuro Trust (Switzerland) SA v The Commissioners for HMRC)

Private Client analysis: This case considered the meaning of 'relevant property' under the settlements regime of the Inheritance Tax Act 1984 (IHTA 1984) and, in particular, the time at which this definition is to be tested. The question arose as to whether the trustees of an offshore trust established by a non-UK domiciled settlor were subject to the UK settlements regime in respect of property added to the trust after the settlor became deemed domiciled in the UK, or whether they were exempt from such charges as the trust consisted solely of excluded property. The First-tier Tribunal (FTT) held that whether trust property is excluded property is based on the status of the trust at the time that it was established, not at the time that the property in question was added to the settlement. As a result, the trust in this case did consist solely of excluded property and no inheritance tax (IHT) charges arose as a result of either the ten-year anniversary or capital distributions. The FTT was also asked to consider whether their jurisdiction was appellate, or supervisory only. The FTT held that, while their jurisdiction was supervisory, the questions raised by the trustees were relevant in establishing whether HMRC had acted reasonably and that the outcome (ie that the paid IHT should be refunded and that no further IHT was due) would be the same in either case. Written by Katherine Willmott, senior associate solicitor at Foot Anstey LLP.

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