What is a charity?

Produced by Tolley in association with Speechly Bircham LLP
What is a charity?

The following Trusts and Inheritance Tax guidance note Produced by Tolley in association with Speechly Bircham LLP provides comprehensive and up to date tax information covering:

  • What is a charity?
  • Introduction to the law of charities
  • Definition of a charity (the English law definition)
  • The jurisdiction requirement
  • The distinction between grant-making and operating charities
  • Charitable purposes
  • The public benefit requirement
  • Community interest companies
  • Community amateur sports clubs

Introduction to the law of charities

This guidance note is concerned with institutions which are considered to be charitable under the law of England and Wales. For institutions outside England and Wales please see the Foreign charitable trusts and other foreign charities guidance note.

Many western countries grant tax exemptions and incentives to donors to charitable organisations in recognition of the fact that the charitable services which they provide would otherwise fall to be provided by the state. The UK has provided for charity-related tax relief to one extent or another since 1799.

Definition of a charity (the English law definition)

As a matter of English law, an institutionis a charity if:

  1. it is subject to the jurisdiction of the courts of England and Wales, and

  2. it is established for exclusively charitable purposes (Charities Act 2011, s 1)

The definition of 'charity' above does not apply for the purposes of a particular Act of Parliament if a different definition applies for those purposes. In particular, with effect from April 2012, there is a separate definition in Schedule 6 to the Finance Act 2010 which applies for UK tax purposes, ie to determine:

  1. a)

    whether a gift by a UK taxpayer to an institutionestablished for charitable purposes qualifies for UK tax exemption or relief, and

  2. b)

    whether such an institutionitself qualifies for exemption or relief from UK taxation, for example in the event that it realises profits from a trade carried on in the UK

The definition of ‘charity’ for UK tax purposes is discussed in the Foreign charitable trusts and other foreign charities guidance note.

The jurisdiction requirement

In order to be recognised as a charity under English law, an institutionwhose purposes are exclusively charitable must be subject to the jurisdiction of the High Court of England and constituted under English law. Slightly different principles apply to corporate institutions (such as companies limited by guarantee) and unincorporated institutions (such as trusts and unincorporated associations).

A company limited by guarantee

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