Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
273

519
Meaning of “charitable trust”
In this Part “charitable trust” means a trust established for charitable purposes
only.
Gifts and other payments
520
Gifts entitling donor to gift aid relief: income tax treated as paid
5
(1)
This section applies if a gift is made to a charitable trust by an individual and
the gift is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid).
(2)
The charitable trust is treated as receiving, under deduction of income tax at
the basic rate for the tax year in which the gift is made, a gift of an amount equal
to the grossed up amount of the gift.
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(3)
The grossed up amount of the gift is the amount of the gift grossed up by
reference to the basic rate for the tax year in which the gift is made.
(4)
The income tax treated as deducted is treated as income tax paid by the trustees
of the charitable trust.
521
Gifts entitling donor to gift aid relief: income tax liability and exemption
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(1)
This section applies if gifts are made to charitable trusts by individuals and the
gifts are qualifying donations for the purposes of Chapter 2 of Part 8 (gift aid).
(2)
Income tax is charged on the gifts under this section.
(3)
It is charged on the grossed up amount of the gifts arising in the tax year.
(4)
But a gift is not taken into account in calculating total income so far as it is
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applied to charitable purposes only.
(5)
The grossed up amount of a gift is the amount of the gift grossed up by
reference to the basic rate for the tax year in which the gift is made.
(6)
The trustees of the charitable trust are liable for any tax charged under this
section.
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522
Gifts of money from companies: income tax liability and exemption
(1)
This section applies if gifts of sums of money are made to charitable trusts by
companies.
(2)
But this section does not apply to a gift of a sum of money made by a company
that is itself a charity (see section 523).
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(3)
Income tax is charged on the gifts under this section.
(4)
It is charged on the full amount of the gifts arising in the tax year.
(5)
But a gift is not taken into account in calculating total income so far as it is
applied to charitable purposes only.
(6)
The trustees of the charitable trust are liable for any tax charged under this
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section.

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
274

523
Payments from other charities: income tax liability and exemption
(1)
This section applies to payments which—
(a)
are received by charitable trusts from other charities,
(b)
are not made for full consideration in money or money’s worth,
(c)
are not charged to income tax, apart from this section, and
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(d)
are not of a description which (on a claim) would be exempt from
income tax under any of the exemptions conferred by this Part.
(2)
This section does not apply to a payment which arises from a source outside
the United Kingdom.
(3)
Income tax is charged under this section on the payments.
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(4)
It is charged on the full amount of the payments arising in the tax year.
(5)
But a payment is not taken into account in calculating total income so far as it
is applied to charitable purposes only.
(6)
The amount charged under this section in the case of certain payments made
by the trustees of a charitable trust in the exercise of a discretion is subject to
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section 494 (grossing up of discretionary payments from trusts).
(7)
The trustees of the charitable trust are liable for any tax charged under this
section.
Other exemptions
524
Exemption for profits etc of charitable trades
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(1)
The income mentioned in subsection (2) is not taken into account in calculating
total income if conditions A and B are met.
(2)
The income referred to in subsection (1) is—
(a)
the profits of a trade carried on by a charitable trust,
(b)
amounts treated as adjustment income of a charitable trust under
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section 228 of ITTOIA 2005 in respect of a trade carried on by the trust,
and
(c)
post-cessation receipts arising from a trade carried on by a charitable
trust which are received by the trustees of the trust or to which they are
entitled.
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(3)
Condition A is—
(a)
in the case of the profits of a trade, that the profits are profits of a tax
year in relation to which the trade is a charitable trade,
(b)
in the case of an amount treated as adjustment income, that the amount
arises in a tax year in relation to which the trade is a charitable trade,
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and
(c)
in the case of a post-cessation receipt, that the trade was a charitable
trade in relation to the tax year in which the cessation occurred.

See section 525 as to when a trade is a charitable trade in relation to a tax year.
(4)
Condition B is that the profits are, or the amount or post-cessation receipt is,
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(as the case may be) applied to the purposes of the charitable trust only.

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
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(5)
Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income
is treated as arising) apply for the purposes of subsection (3) as they apply for
the purposes of Chapter 17 of Part 2 of that Act.
(6)
In this section “post-cessation receipt” means an amount that is a post-
cessation receipt for the purposes of Chapter 18 of Part 2 of ITTOIA 2005 (post-
5
cessation receipts) (see sections 246 to 253 of that Act).
525
Meaning of “charitable trade”
(1)
For the purposes of this Part a trade carried on by a charitable trust is a
charitable trade in relation to a tax year if throughout the basis period for the
tax year—
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(a)
the trade is exercised in the course of carrying out a primary purpose of
the charitable trust, or
(b)
the work in connection with the trade is mainly carried out by
beneficiaries of the charitable trust.
(2)
For the purposes of subsection (1)(a), if a trade is exercised partly in the course
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of carrying out a primary purpose of the charitable trust and partly otherwise,
each part is to be treated as a separate trade.
(3)
For the purposes of subsection (1)(b), if work in connection with a trade is
carried out partly but not mainly by beneficiaries, the part in connection with
which work is carried out by beneficiaries and the other part are to be treated
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as separate trades.
(4)
If different parts of a trade are treated as separate trades under subsection (2)
or (3), a just and reasonable apportionment is to be made for that purpose of—
(a)
expenses and receipts of the trade, and
(b)
any amounts which are treated as adjustment income under section 228
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of ITTOIA 2005 in respect of the trade, or which are post-cessation
receipts arising from the trade for the purposes of Chapter 18 of Part 2
of that Act.
(5)
For the rules about basis periods, see Chapter 15 of Part 2 of ITTOIA 2005.
526
Exemption for profits etc of small-scale trades
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(1)
The income mentioned in subsection (2) is not taken into account in calculating
total income if conditions A and B are met.
(2)
The income referred to in subsection (1) is—
(a)
the profits of a trade carried on by a charitable trust,
(b)
amounts treated as adjustment income of a charitable trust under
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section 228 of ITTOIA 2005 in respect of a trade carried on by the trust,
and
(c)
post-cessation receipts arising from a trade carried on by a charitable
trust which are received by the trustees of the trust or to which they are
entitled.
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(3)
Subsection (1) does not apply in respect of—
(a)
profits of a trade that are, apart from this section, exempt from income
tax chargeable under Part 2 of ITTOIA 2005,

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(b)
amounts treated as adjustment income that are, apart from this section,
exempt from income tax chargeable under Chapter 17 of Part 2 of that
Act, or
(c)
post-cessation receipts that are, apart from this section, exempt from
income tax chargeable under Chapter 18 of Part 2 of that Act.
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(4)
Condition A is—
(a)
in the case of the profits of a trade, that the profits are profits of a tax
year in relation to which the condition specified in section 528
(condition as to trading and miscellaneous incoming resources) is met,
(b)
in the case of an amount treated as adjustment income, that the amount
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arises in such a tax year, and
(c)
in the case of a post-cessation receipt, that it is received in such a tax
year.
(5)
Condition B is that the profits are, or the amount or post-cessation receipt is,
(as the case may be) applied to the purposes of the charitable trust only.
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(6)
Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income
is treated as arising) apply for the purposes of subsection (4) as they apply for
the purposes of Chapter 17 of Part 2 of that Act.
(7)
In this section “post-cessation receipt” means an amount that is a post-
cessation receipt for the purposes of Chapter 18 of Part 2 of that Act (post-
20
cessation receipts) (see sections 246 to 253 of that Act).
527
Exemption from charges under provisions to which section 950 applies
(1)
Any income or gains of a charitable trust that is or are chargeable to income tax
under or by virtue of any provision to which section 950 applies is not or are
not taken into account in calculating total income if conditions A and B are met.
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(2)
Subsection (1) does not apply in respect of any income or gains chargeable to
income tax by virtue of any of—
(a)
section 214 of ICTA (chargeable payments connected with exempt
distributions),
(b)
section 804 of that Act (double taxation relief),
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(c)
Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life
insurance etc),
(d)
Chapter 5 of Part 5 of that Act (settlements: amounts treated as income
of settlor),
(e)
section 688 (transactions in land), and
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(f)
any other enactment specified in an order made by the Treasury.
(3)
Subsection (1) does not apply in respect of any income that is, or gains that are,
apart from this section, exempt from income tax chargeable under or by virtue
of any provision to which section 950 applies.
(4)
Condition A is that the income is, or the gains are, for a tax year in relation to
40
which the condition specified in section 528 is met.
(5)
Condition B is that the income is, or the gains are, applied to the purposes of
the charitable trust only.