Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
282

540
The non-exempt amount
(1)
A charitable trust has a non-exempt amount for a tax year if it has—
(a)
non-charitable expenditure for the tax year (amount A), and
(b)
attributable income and gains for the tax year (amount B).
(2)
The non-exempt amount for the tax year is—
5
(a)
amount A, or
(b)
if less, amount B.
(3)
For the purposes of this Part—
(a)
a charitable trust’s “attributable income” for a tax year is the charitable
trust’s income for the tax year that is exempt from income tax as a result
10
of any of the exemptions under this Part,
(b)
a charitable trust’s “attributable gains” for a tax year are any gains
accruing to the charitable trust in the tax year that as a result of section
261 of TCGA 1992, are not chargeable gains, and
(c)
a charitable trust’s “attributable income and gains” for a tax year is the
15
sum of its attributable income for the tax year and its attributable gains
for the tax year.
(4)
In applying subsection (3)(a) ignore any restrictions on the exemptions under
this Part which result from section 539(2).
(5)
In applying subsection (3)(b) ignore any restriction on the exemption under
20
section 256(1) of TCGA 1992 which results from section 256(4) of that Act.
541
Attributing income to the non-exempt amount
(1)
This section applies if a charitable trust has a non-exempt amount for a tax
year.
(2)
Attributable income of the charitable trust for the tax year may be attributed to
25
the non-exempt amount but only so far as the non-exempt amount has not been
used up.
(3)
The non-exempt amount can be used up (in whole or in part) by—
(a)
attributable income being attributed to it under this section, or
(b)
attributable gains being attributed to it under section 256A of TCGA
30
1992.
(4)
The whole of the non-exempt amount must be used up by—
(a)
attributable income being attributed to the whole of it under this
section,
(b)
attributable gains being attributed to the whole of it under section 256A
35
of TCGA 1992, or
(c)
a combination of attributable income being attributed to some of it
under this section and attributable gains being attributed to the rest of
it under section 256A of TCGA 1992.
(5)
See section 542 for the way in which income is to be attributed to the non-
40
exempt amount under this section.

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
283

542
How income is attributed to the non-exempt amount
(1)
This section is about the ways in which attributable income can be attributed
to a non-exempt amount under section 541.
(2)
The trustees of the charitable trust may specify the attributable income that is
to be attributed to the non-exempt amount.
5
(3)
A specification under subsection (2) is made by notice to an officer of Revenue
and Customs.
(4)
Subsection (6) applies if—
(a)
an officer of Revenue and Customs requires the trustees of a charitable
trust to make a specification under this section, and
10
(b)
the trustees have not given notice under subsection (3) of the
specification before the end of the required period.
(5)
The required period is 30 days beginning with the day on which the officer
made the requirement.
(6)
An officer of Revenue and Customs may determine the attributable income
15
that is to be attributed to the non-exempt amount.
Non-charitable expenditure
543
Meaning of “non-charitable expenditure”
(1)
For the purposes of this Part a charitable trust’s non-charitable expenditure for
a tax year is—
20
(a)
any loss made in the tax year in a trade carried on by the charitable trust
unless—
(i)
the trade is a charitable trade in relation to the tax year, or
(ii)
the trade is not a charitable trade in relation to the tax year but
profits of the trade arising in the tax year would be exempt from
25
income tax as a result of one of the exemptions in sections 526,
529 or 530,
(b)
any payment made in the tax year by the charitable trust in connection
with a trade in circumstances where relief is available under section 96
(post-cessation trade relief) unless—
30
(i)
the trade was a charitable trade in relation to the tax year in
which the cessation occurred, or
(ii)
the trade was not a charitable trade in relation to that tax year
but profits of the trade arising immediately before the cessation
would have been exempt from income tax as a result of one of
35
the exemptions in sections 526, 529 or 530,
(c)
any loss made in the tax year in a trade, or in a UK property business or
an overseas property business, carried on by the charitable trust, if—
(i)
the loss relates to land, and
(ii)
profits of the trade, or income of the business, generated from
40
the land in the tax year would not be exempt from income tax
as a result of the exemptions in section 531,
(d)
any payment made in the tax year by the charitable trust in connection
with a trade or UK property business in circumstances where relief is

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
284

available under section 96 or 125 (post-cessation trade or property
relief), if—
(i)
the payment relates to land, and
(ii)
profits of the trade, or income of the business, generated from
the land immediately before the cessation would not have been
5
exempt from income tax as a result of the exemptions in section
531,
(e)
any loss made in the tax year in a miscellaneous transaction entered
into by the charitable trust otherwise than in the course of carrying out
a charitable purpose,
10
(f)
any expenditure incurred by the charitable trust in the tax year, not
falling within paragraphs (b) or (d), which is not incurred for charitable
purposes only and is not required to be taken into account in
calculating—
(i)
the profits of, or losses made in, any trade, UK property
15
business or overseas property business carried on by the
charitable trust, or
(ii)
the profit or loss made in any miscellaneous transaction entered
into by the charitable trust,
(g)
any payment made in the tax year by the charitable trust to a
20
substantial donor which is treated under section 551(1) or (5) as non-
charitable expenditure,
(h)
any non-charitable expenditure treated as incurred under section
551(2) as a result of a transaction between the charitable trust and a
substantial donor,
25
(i)
the amount of any of the charitable trust’s funds that is invested in the
tax year in an investment which is not an approved charitable
investment (see section 558), and
(j)
any amount lent in the tax year by the charitable trust, if the loan is
neither an investment nor an approved charitable loan (see section 561).
30

But anything which falls within more than one of the above paragraphs counts
as non-charitable expenditure only once.
(2)
An amount may also be non-charitable expenditure for a tax year as a result of
section 562 (excess expenditure treated as non-charitable expenditure of earlier
years).
35
(3)
This section needs to be read with—
section 525 (meaning of “charitable trade”),
sections 544 to 548 (supplementary provision in relation to this section, in
particular in relation to subsection (1)(f), (i) and (j)),
sections 549 to 557 (transactions with substantial donors),
40
section 558 (approved charitable investments), and
section 561 (approved charitable loans).
544
Section 543: supplementary
(1)
This section applies for the purposes of section 543.
(2)
For rules about the calculation of losses, see—
45
(a)
section 26 of ITTOIA 2005 (losses of a trade calculated on same basis as
profits),

Income Tax Bill
Part 10 — Special rules about charitable trusts etc
285

(b)
section 272 of that Act (which applies section 26 of that Act, so that
losses of a UK property business or overseas property business are
calculated on the same basis as profits), and
(c)
section 872 of that Act (losses from miscellaneous transactions
calculated on same basis as miscellaneous income).
5
(3)
A transaction is a miscellaneous transaction if it is of such a nature that, if
income or gains had arisen from it—
(a)
ignoring section 527 (exemption from charges under provisions to
which section 1016 applies), it would have been charged to income tax
under or by virtue of any provision to which section 1016 applies, and
10
(b)
the trustees of the charitable trust would have been liable for any tax so
chargeable.
(4)
References to a charitable trust making a loss in a trade in a tax year are to the
charitable trust making a loss in the trade in the basis period for the tax year.
545
Section 543(1)(f): meaning of expenditure
15
(1)
For the purposes of section 543(1)(f) “expenditure” includes expenditure of a
capital nature.
(2)
None of the following is “expenditure” for those purposes—
(a)
the investment of any of the charitable trust’s funds,
(b)
the making of a loan by the charitable trust, or
20
(c)
the repayment by the charitable trust of the whole or a part of a loan
made to it.
546
Section 543(1)(f): tax year in which certain expenditure treated as incurred
(1)
This section applies for the purposes of section 543(1)(f).
(2)
Subsection (3) applies to expenditure which is referable to commitments
25
(whether or not of a contractual nature) that the charitable trust has entered
into before or during a tax year.
(3)
The expenditure is treated as incurred in the tax year if, had the charitable trust
been required to draw up accounts that met the requirements mentioned in
subsection (4), the expenditure would have been required to be taken into
30
account in preparing those accounts.
(4)
The requirements referred to in subsection (3) are—
(a)
that the accounts are drawn up for the tax year, and
(b)
that UK generally accepted accounting practice applies with respect to
them.
35
547
Section 543(1)(f): payment to body outside the UK
A payment made, or to be made, to a body situated outside the United
Kingdom is non-charitable expenditure under section 543(1)(f) if—
(a)
it is incurred for charitable purposes only, but
(b)
the trustees of the charitable trust have not taken such steps as are
40
reasonable in the circumstances to ensure that the payment will be
applied for charitable purposes.