Finance (No. 3) Bill (HC Bill 200)

(a) a person makes a tainted donation in a tax year,

(b) the tainted donation or an associated donation is a payment
10by the trustees of a settlement of income arising under the
settlement (“the trust donation”), and

(c) the charity to which the trust donation is made is entitled to
claim a repayment of tax in respect of that donation.

(2) The amount of the tax charged under this section is equal to the
15amount of the repayment of tax which the charity is entitled to claim
in respect of the trust donation (whether or not such a claim is made).

(3) Each of the persons mentioned in subsection (4) is liable for any tax
charged under this section, and the liability of those persons is joint
and several.

(4) 20The persons are—

(a) the trustees of the settlement who made the trust donation,

(b) if different, the donor in respect of the tainted donation,

(c) if section 628 or 630 of ITTOIA 2005 (gifts from settlor-
interested trusts etc) applies in relation to the income out of
25which the trust donation is made, the settlor in relation to the
settlement,

(d) each potentially advantaged person under the relevant
arrangements relating to the tainted donation,

(e) any beneficiary of the settlement who is party to those
30arrangements, and

(f) any charity to which the trust donation or (if different) the
tainted donation is made, or any connected charity, which
falls within subsection (5).

(5) A charity falls within this subsection if—

(a) 35the charity is or was party to the relevant arrangements
relating to the tainted donation, and

(b) the charity was aware, at the time it entered into those
arrangements, that a linked person was entering (or had
entered or was likely to enter) into the arrangements in
40circumstances falling within Condition B in section 809ZJ.

(6) No liability to income tax arises under this section in respect of a
repayment of tax if that repayment is itself repaid to the
Commissioners for Her Majesty’s Revenue and Customs under any
other provision of the Tax Acts.

(7) 45In this section—

• “associated donation” has the same meaning as in section
  809ZM;

Finance (No. 3) BillPage 130

• “linked person” has the same meaning as in section 809ZJ;

• “the relevant arrangements” has the same meaning as in section
  809ZM;

• “settlement” and “settlor” have the same meaning as in Chapter
  55 of Part 5 of ITTOIA 2005 (see section 620 of that Act).

Supplementary

809ZP Connected charities

For the purposes of this Chapter, a “connected charity” in relation to
another charity means a charity which is connected with that other
10charity in a matter relating to the structure, administration or control
of either charity.

809ZQ Connected persons

(1) Section 993 (meaning of “connected” persons) applies for the
purposes of this Chapter—

(a) 15subject to section 809ZP, and

(b) as if, after subsection (7) there were inserted the provision in
subsection (2).

(2) That provision is—

“(8) A person who is a beneficiary of a settlement is connected
20with—

• (a) a person in the capacity as trustee of the settlement,
  and

• (b) the settlor in relation to the settlement.

(9) For the purposes of this section—

• 25 (a) a man and woman living together as husband and
  wife are treated as if they were husband and wife,

• (b) two people of the same sex living together as if
  they were civil partners of each other are treated as
  if they were civil partners of each other, and

• 30 (c) “close company” includes a company that would
  be a close company if it were resident in the United
  Kingdom.”

809ZR Minor definitions

(1) In this Chapter—

• 35“arrangements” includes any scheme, arrangement or
  understanding of any kind, whether or not legally
  enforceable, involving a single transaction or two or more
  transactions;

• “charity” includes a registered club within the meaning of
  40section 658(6) of CTA 2010 (meaning of “community amateur
  sports club” and “registered club”).

(2) In this Chapter, in the case of a charitable trust, references to a charity
being entitled to a repayment of, or liable to pay, tax are to be read as
references to the trustees of the trust being so entitled or liable.”

Part 2 Corporation tax

2 After Part 21B of CTA 2010 (inserted by Schedule 5 to this Act) insert—

“ Part 21C 5 Tainted charity donations

Introduction

939A Overview of Part

(1) This Part makes provision for removing entitlement to corporation
10tax reliefs where a person makes a relievable charity donation which
is a tainted donation.

(2) See Chapter 8 of Part 13 of ITA 2007 and section 257A of TCGA 1992
for the removal of entitlement to other reliefs, and the ways in which
other income tax advantages are counteracted, where a person
15makes a relievable charity donation which is a tainted donation.

939B Relievable charity donations

(1) In this Chapter “relievable charity donation” means a gift or other
disposal which—

(a) is made by a person to a charity, and

(b) 20is eligible for tax relief.

(2) A gift or other disposal is eligible for tax relief if one or both of the
following apply—

(a) (ignoring the tainted donation provisions) tax relief would be
available in respect of it under a relevant relieving provision;

(b) 25the charity is entitled to claim a repayment of tax in respect of
it.

(3) “The tainted donation provisions” are—

(a) this Part,

(b) section 257A of TCGA 1992 (tainted charity donations:
30disapplication of section 257), and

(c) Chapter 8 of Part 13 of ITA 2007 (tainted charity donations:
removal of income tax relief etc).

(4)
The following are “relevant relieving provisions”—

(a) section 257 of TCGA 1992 (gifts of chargeable assets),

(b) 35section 63(2)(a), (aa) and (ab) of CAA 2001 (gifts of plant and
machinery),

(c) Part 12 of ITEPA 2003 (payroll giving),

(d) section 108 of ITTOIA 2005 (gifts of trading stock),

(e) Chapters 2 and 3 of Part 8 of ITA 2007 (gift aid and gifts of
40shares),

(f) section 105 of CTA 2009 (gifts of trading stock), and

(g) Part 6 of this Act (charitable donations relief).

(5) For the purposes of this Part, an amount of income which arises
under a UK settlement and to which a charity is entitled under the
terms of the settlement is to be regarded as an amount gifted to the
5charity by the trustees of the settlement.

“UK settlement” has the same meaning as in section 628 of ITTOIA
2005.

Tainted donations

939C Tainted donations

(1) 10For the purposes of this Part, a relievable charity donation is a tainted
donation if (and only if) Conditions A, B and C are met.

(2) Condition A is that—

(a) a linked person enters into arrangements (whether before or
after the donation is made), and

(b) 15it is reasonable to assume from either or both of—

(i) the likely effects of the donation and the
arrangements, and

(ii) the circumstances in which the donation is made and
the circumstances in which the arrangements are
20entered into,

that the donation would not have been made and the
arrangements would not have been entered into
independently of one another.

(3) “Linked person” means—

(a) 25the person who made the donation (“the donor”), or

(b) a person who is connected with the donor at a relevant time.

(4) In subsection (3) “relevant time” means a time during the period
which begins with the earliest, and ends with the latest, of the
following times—

(a) 30the time when the arrangements are entered into as
mentioned in subsection (2);

(b) the time when the relievable charity donation is made;

(c) the time when the arrangements are first materially
implemented.

(5) 35Condition B is that the main purpose, or one of the main purposes,
of the linked person in entering into the arrangements is to obtain a
financial advantage—

(a) directly or indirectly from the charity to which the donation
is made or a connected charity,

(b) 40for one or more linked persons who are not charities (each of
whom is referred to in this Part as “a potentially advantaged
person”).

(6) Condition C is that the donor is not—

(a) a qualifying charity-owned company, or

(b) 45a relevant housing provider linked with the charity to which
the donation is made.

(7) For the purposes of subsection (6)(b) a relevant housing provider is
linked with the charity if (and only if)—

(a) one is wholly owned, or subject to control, by the other, or

(b) both are wholly owned, or subject to control, by the same
5person.

(8) In this section—

• “qualifying charity-owned company”, in relation to a relievable
  charity donation, means a company which—

  (a)

  is wholly owned by one or more charities, at least one
  10of which is the charity to which the donation is made
  or a connected charity, and

  (b)

  has not previously been under the control of, and
  does not carry on a trade or business previously
  carried on by, one or more of the following—

  (i)

  15a potentially advantaged person;

  (ii)

  a person (other than a charity) who, at any
  time within the period of 4 years ending with
  the day on which paragraph (a) was first
  satisfied, was connected with a person who is
  20a potentially advantaged person;

• “relevant housing provider” means a body which is—

  (a)

  a non-profit registered provider of social housing, or

  (b)

  entered on a register maintained under section 1 of
  the Housing Act 1996, section 20 of the Housing
  25(Scotland) Act 2010 (asp 17)2010 (asp 17) or Article 14 of the
  Housing (Northern Ireland) Order 1992 (S.I. 1992/
  1725 (N.I. 15)).

(9) Section 200 (company wholly owned by a charity) applies for the
purposes of subsection (8), and for those purposes references in that
30section to “charity” include a registered club within the meaning of
section 658(6).

(10) This section is subject to section 939E (certain financial advantages to
be ignored).

939D Circumstances in which financial advantage deemed to be obtained

(1) 35This section applies for the purposes of Condition B.

(2) Subsection (3) applies where the arrangements entered into by the
linked person (as mentioned in Condition A) involve a transaction to
which—

(a) that or another linked person (“X”), and

(b) 40another person (“Y”),

are parties.

(3) X obtains a financial advantage from the charity to which the
donation is made or a connected charity if—

(a) the terms of the transaction are less beneficial to Y or more
45beneficial to X (or both) than those which might reasonably
be expected in a transaction concluded between parties
dealing at arm’s length, or

(b) the transaction is not of a kind which a person dealing at
arm’s length and in place of Y might reasonably be expected
to make.

(4) Nothing in this section is intended to limit the circumstances in
5which a linked person may be regarded as obtaining a financial
advantage for the purposes of section 939C.

(5) In this section—

• “Condition A” and “Condition B” have the same meaning as in
  section 939C;

• 10“linked person” has the meaning given by section 939C(3);

• “transaction” includes (for example)—

  (a)

  the sale or letting of property,

  (b)

  the provision of services,

  (c)

  the exchange of property,

  (d)

  15the provision of a loan or any other form of financial
  assistance, and

  (e)

  investment in a business.

939E Certain financial advantages to be ignored

(1) When determining whether a relievable charity donation is a tainted
20donation, a financial advantage within subsection (2), (3), (4) or (5) is
to be ignored.

(2) A financial advantage is within this subsection if the person for
whom it is obtained applies the advantage for charitable purposes
only.

(3) 25A financial advantage is within this subsection if (ignoring the
tainted donation provisions) it is—

(a) a benefit associated with a gift which is a qualifying donation
for the purposes of Chapter 2 of Part 8 of ITA 2007 (gift aid),
or

(b) 30a benefit associated with a payment which is a qualifying
payment for the purposes of Chapter 2 of Part 6 (charitable
donations relief: payments to charity).

(4) A financial advantage is within this subsection if (ignoring the
tainted donation provisions)—

(a) 35the relievable charity donation is a disposal in respect of
which tax relief would be available under Chapter 3 of Part 8
of ITA 2007 (gifts of shares, securities and real property to
charities etc) or Chapter 3 of Part 6 (charitable donations:
certain disposals to charity), and

(b) 40the advantage is a benefit the value of which would be taken
into account in determining the relievable amount in respect
of the disposal for the purposes of the Chapter in question.

(5) A financial advantage is within this subsection if (ignoring the
tainted donation provisions)—

(a) 45the relievable charity donation is a gift in respect of which tax
relief would be available under section 108 of ITTOIA 2005 or
section 105 of CTA 2009 (gifts of trading stock to charities
etc), and

(b) the advantage is a benefit attributable to the making of the
gift in respect of which an amount would be brought into
account under section 109 of ITTOIA 2005 or section 108 of
CTA 2009 (receipt of benefits by donor or connected person).

(6) 5In this section—

• “benefit associated with a gift” has the meaning given by section
  417 of ITA 2007;

• “benefit associated with a payment” has the meaning given by
  section 196;

• 10“the tainted donation provisions” has the meaning given by
  section 939B(3).

Removal of reliefs

939F Removal of corporation tax relief in respect of tainted donations etc

(1) This section applies where a tainted donation is made by a company.

(2) 15Where (ignoring this Part) corporation tax relief would be available
in respect of the tainted donation, that relief is not available.

(3) Where—

(a) (ignoring this Part) corporation tax relief would be available
in respect of an associated donation, and

(b) 20entitlement to that relief is not withdrawn by subsection (2),

that relief is not available.

(4) In this section —

• “associated donation”, in relation to a tainted donation, means
  a relievable charity donation made—

  (a)

  25in accordance with the relevant arrangements, and

  (b)

  by a person, other than—

  (i)

  a qualifying charity-owned company in
  relation to that relievable charity donation, or

  (ii)

  a relevant housing provider linked (within the
  30meaning of section 939C(7)) with the charity
  to which that donation is made;

• “corporation tax relief” means relief under—

  (a)

  section 63(2)(a), (aa) or (ab) of CAA 2001 (gifts of plant
  and machinery), so far as it applies in relation to
  35corporation tax,

  (b)

  section 105 of CTA 2009 (gifts of trading stock), or

  (c)

  Part 6 of CTA 2010 (charitable donations relief);

• “qualifying charity-owned company” has the meaning given by
  section 939C(8) (except that paragraph (b) of that definition
  40does not apply);

• “relevant housing provider” has the meaning given by section
  939C(8);

• “the relevant arrangements”, in relation to a tainted donation,
  means the arrangements by reference to which Conditions A
  45to C in section 939C are met.

Supplementary

939G Connected charities

For the purposes of this Part, a “connected charity” in relation to
another charity means a charity which is connected with that other
5charity in a matter relating to the structure, administration or control
of either charity.

939H Connected persons

(1) Section 1122 (meaning of “connected” persons) applies for the
purposes of this Part (except section 939G), but subject to the
10following modification.

(2) Section 1122 has effect as if after subsection (8) there were inserted—

“(9) A person who is a beneficiary of a settlement is connected
with—

• (a) a person in the capacity as trustee of the settlement,
  15 and

• (b) the settlor in relation to the settlement.

(10) For the purposes of this section—

• (a) a man and woman living together as husband and
  wife are treated as if they were husband and wife,

• 20(b) two people of the same sex living together as if they
  were civil partners of each other are treated as if they
  were civil partners of each other, and

• (c) “close company” includes a company that would be a
  close company if it were resident in the United
  25 Kingdom.”

939I Minor definitions

(1) In this Part—

• “arrangements” includes any scheme, arrangement or
  understanding of any kind, whether or not legally
  30enforceable, involving a single transaction or two or more
  transactions;

• “charity” includes a registered club within the meaning of
  section 658(6) (meaning of “community amateur sports club”
  and “registered club”).

(2) 35In this Part, in the case of a charitable trust, references to a charity
being entitled to a repayment of tax are to be read as references to the
trustees of the trust being so entitled.”

Part 3 Capital gains tax

3 40After section 257 of TCGA 1992 insert—

“257A Tainted charity donations

(1) Section 257 does not apply in relation to—

(a) a tainted donation made by a person, or

(b) any associated donation.

(2) For the purposes of this section—

(a) “tainted donation” means a tainted donation within the
meaning of Chapter 8 of Part 13 of ITA 2007 (tainted charity
5donations: removal of income tax reliefs etc) or Part 21C of
CTA 2010 (tainted charity donations: removal of corporation
tax relief), and

(b) “associated donation” means an associated donation within
the meaning of section 809ZM of ITA 2010 or section 939F of
10CTA 2010.”

Part 4 Consequential amendments

Capital Allowances Act 2001

4 In section 63 of CAA 2001 (cases in which disposal value is nil), in subsection
15(4)—

(a) after “Subsection (2)” insert “—

(a)”, and

(b) at the end insert “, and

(b) is subject to section 809ZM of ITA 2007 and section
20939F of CTA 2010 (removal of tax relief in respect of
tainted charity donations etc).”

Income Tax (Employment and Pensions) Act 2003

5 In section 713 of ITEPA 2003 (donations to charity: payroll deduction
scheme), after subsection (5) insert—

“(6) 25This section is subject to section 809ZM of ITA 2007 (removal of
income tax relief in respect of tainted charity donations etc).”

Income Tax (Trading and Other Income) Act 2005

6 In section 108 of ITTOIA 2005 (gifts of trading stock to charities etc), in
subsection (5)—

(a) 30after “This section” insert “—

(a)”, and

(b) at the end insert “, and

(b) is subject to section 809ZM of ITA 2007 (removal of
income tax relief in respect of tainted charity
35donations etc).”

Income Tax Act 2007

7 ITA 2007 is amended as follows.

8 In section 30 (calculation of income tax liability: additional tax)—

(a) in subsection (1) before the entry for section 205 of FA 2004 insert—

• 40“section 809ZN (tainted gift aid donations: charge to
  tax),

Finance (No. 3) BillPage 138

• section 809ZO (tainted charity donations by trustees:
  charge to tax),”, and

(b) for subsection (2) substitute—

“(2) If the taxpayer is a trustee, the provisions referred to at Step
57 of the calculation in section 23 are—

• section 496 (discretionary payments by trustees: tax pool
  adjustment),

• section 809ZN (tainted gift aid donations: charge to tax),
  and

• 10section 809ZO (tainted charity donations by trustees:
  charge to tax).”

9 In section 58 (meaning of “adjusted net income), at the end insert—

“(4) Subsection (6) of section 809ZM (removal of income tax relief in
respect of tainted donations etc) excludes certain donations from
15being deducted at step 2 in subsection (1).”

10 In section 413 (gift aid: overview of Chapter), after subsection (4) insert—

“(4A) This Chapter is subject to section 809ZM (removal of income tax
relief in respect of tainted charity donations etc).”

11 In section 431 (gifts of shares, securities and real property to charities etc),
20after subsection (6) insert—

“(7) This Chapter is subject to section 809ZM (removal of income tax
relief in respect of tainted charity donations etc).”

12 In section 543 (meaning of “non-charitable expenditure”), omit subsection
(1)(g) and (h).

13 25Sections 549 to 557 (substantial donor transactions) are repealed.

14 In Schedule 2 (transitionals and savings), omit paragraphs 105 and 106.

15 In Schedule 4 (index of defined expressions), at the appropriate places
insert—