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
286

548
Section 543(1)(i) and (j): investments and loans
(1)
Subsection (2) applies if in a tax year a charitable trust—
(a)
realises the whole or part of an investment which was made in the tax
year and is not an approved charitable investment (see section 558), or
(b)
is repaid the whole or part of a loan which was made in the tax year and
5
is neither an investment nor an approved charitable loan (see section
561).
(2)
Any further investment or lending in the tax year of the sum realised or repaid,
so far as it does not exceed the sum originally invested or lent, is not non-
charitable expenditure as a result of section 543(1)(i) or (j).
10
Substantial donor transactions
549
Transactions with substantial donors
(1)
For the purposes of this section and sections 551 to 553, “substantial donor
transaction” means any of the following—
(a)
the sale or letting of property by a charitable trust to a substantial
15
donor,
(b)
the sale or letting of property to a charitable trust by a substantial
donor,
(c)
the provision of services by a charitable trust to a substantial donor,
(d)
the provision of services to a charitable trust by a substantial donor,
20
(e)
an exchange of property between a charitable trust and a substantial
donor,
(f)
the provision of financial assistance by a charitable trust to a substantial
donor,
(g)
the provision of financial assistance to a charitable trust by a substantial
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donor, and
(h)
investment by a charitable trust in the business of a substantial donor.
(2)
For the purposes of this section and sections 551 to 553, a person is a substantial
donor to a charitable trust for a tax year if—
(a)
the charitable trust receives relievable gifts of at least £25,000 from the
30
person in a period of 12 months in which the tax year wholly or partly
falls, or
(b)
the charitable trust receives relievable gifts of at least £100,000 from the
person in a period of six years in which the tax year wholly or partly
falls.
35
(3)
If a person is a substantial donor to a charitable trust for a tax year as a result
of subsection (2)(a) or (b), the person is a substantial donor to the charitable
trust for each of the following five tax years.
(4)
A transaction entered into in a tax year with a person who is a substantial
donor for that year may be a substantial donor transaction, even if it was not
40
until after the transaction was entered into that the person first met the
definition of “substantial donor” for the tax year.

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Part 10 — Special rules about charitable trusts etc
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550
Meaning of “relievable gift”
A gift is a “relievable gift” for the purposes of section 549(2) if relief is available
in respect of it under—
(a)
section 83A of ICTA (gifts in kind),
(b)
section 339 of ICTA (donations by companies),
5
(c)
sections 587B and 587C of ICTA (gifts of shares, securities and real
property),
(d)
section 257 of TCGA 1992 (gifts of chargeable assets),
(e)
section 63 of CAA 2001 (gifts of plant and machinery),
(f)
sections 713 to 715 of ITEPA 2003 (payroll giving),
10
(g)
section 108 of ITTOIA 2005 (gifts of trading stock),
(h)
sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested
trusts), or
(i)
Chapters 2 or 3 of Part 8 of this Act (gift aid and gifts of shares,
securities and real property).
15
551
Non-charitable expenditure in substantial donor transactions
(1)
A payment made by a charitable trust to a substantial donor in the course of,
or for the purposes of, a substantial donor transaction is treated for the
purposes of section 543 as non-charitable expenditure.
(2)
If the terms of a substantial donor transaction are less beneficial to the
20
charitable trust than terms which might be expected in a transaction at arm’s
length, the charitable trust is treated for the purposes of section 543 as
incurring non-charitable expenditure.
(3)
The amount of the non-charitable expenditure that the charitable trust is
treated as incurring under subsection (2) is equal to the amount which an
25
officer of Revenue and Customs determines as the cost to the charitable trust
of the difference in terms.
(4)
A charity is treated as incurring non-charitable expenditure under subsection
(2) at such time (or times) as an officer of Revenue and Customs may
determine.
30
(5)
A payment by a charitable trust of remuneration to a substantial donor is
treated for the purposes of section 543 as non-charitable expenditure unless it
is remuneration, for services as a trustee, which is approved by—
(a)
the Charity Commission,
(b)
another body with responsibility for regulating charities by virtue of
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legislation having effect in respect of any part of the United Kingdom,
or
(c)
a court.
(6)
If remuneration is paid otherwise than in money, subsection (5) applies as if it
had been paid in money of an amount that would, under Part 3 of ITEPA 2003,
40
be the cash equivalent of the remuneration as a benefit.
552
Adjustment if section 551(1) and (2) applied to single transaction
(1)
Either or both of subsections (1) and (2) of section 551 may be applied to a
single transaction between a charitable trust and a substantial donor.

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Part 10 — Special rules about charitable trusts etc
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(2)
But if they are both applied, the amount of non-charitable expenditure that the
charitable trust would, apart from this subsection, be treated as incurring
under section 551(2) in respect of the transaction, is reduced by the section
551(1) amount (but is not to be reduced below nil).
(3)
The “section 551(1) amount” means the amount of any payment made by the
5
charitable trust, in the course of, or for the purposes of, the transaction, that is
treated as non-charitable expenditure under section 551(1).
553
Section 551: certain payments and benefits to be ignored
(1)
In the application of section 551, payments by a charitable trust, or benefits
arising to a substantial donor from a transaction, are to be ignored so far as—
10
(a)
they relate to a donation by the donor, and
(b)
either condition A or condition B is met.
(2)
Condition A is that—
(a)
the donation is made by an individual, and
(b)
the payments or benefits do not prevent the donation being a
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qualifying donation for the purposes of section 416 because of
subsection (7)(b) of that section (restrictions on associated benefits).
(3)
Condition B is that—
(a)
the donation is made by a company, and
(b)
the payments or benefits do not prevent the donation being a
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qualifying donation for the purposes of section 339 of ICTA because of
subsection (3B)(b) of that section (restrictions on associated benefits).
554
Transactions: exceptions
(1)
A transaction within section 549(1)(b) or (d) is not a substantial donor
transaction if an officer of Revenue and Customs determines that the
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transaction—
(a)
takes place in the course of a business carried on by the substantial
donor,
(b)
is on terms which are no less beneficial to the charitable trust than those
which might be expected in a transaction at arm’s length, and
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(c)
is not part of an arrangement for the avoidance of any tax.
(2)
The provision of services to a substantial donor is not a substantial donor
transaction if an officer of Revenue and Customs determines that those services
are provided—
(a)
in the course of carrying out a primary purpose of the charitable trust,
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and
(b)
on terms which are no more beneficial to the substantial donor than
those on which services are provided to others.
(3)
The provision of financial assistance to a charitable trust by a substantial donor
is not a substantial donor transaction if an officer of Revenue and Customs
40
determines that the assistance—
(a)
is on terms which are no less beneficial to the charitable trust than those
which might be expected in a transaction at arm’s length, and
(b)
is not part of an arrangement for the avoidance of any tax.

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(4)
Investment by a charitable trust in the business of a substantial donor is not a
substantial donor transaction if the investment takes the form of the purchase
of shares or securities listed on a recognised stock exchange.
(5)
The following are not substantial donor transactions—
(a)
a disposal at an undervalue in respect of which relief is available under
5
section 431 or section 587B of ICTA (gifts of shares, securities and real
property), or
(b)
a disposal at an undervalue to which section 257(2) of TCGA 1992 (gifts
of chargeable assets) applies,

but such disposals may be taken into account in the application of section
10
549(2).
555
Donors: exceptions
(1)
A company which is wholly owned by a charity within the meaning of section
339(7AB) of ICTA is not a substantial donor in relation to a charitable trust
which owns it (or which owns any part of it).
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(2)
A registered social landlord or housing association is not a substantial donor
in relation to a charitable trust with which it is connected.
(3)
“Registered social landlord or housing association” means a body entered on a
register maintained under—
(a)
section 1 of the Housing Act 1996 (c. 52),
20
(b)
section 57 of the Housing (Scotland) Act 2001 (asp. 10), or
(c)
Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1725 (N.I.
15)).
(4)
For the purposes of subsection (2), a body and a charity are connected if (and
only if)—
25
(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 person.
556
Connected charities
(1)
A charitable trust and any other charities with which it is connected are to be
treated as a single charitable trust for the purposes of section 549 to 555.
30
(2)
For this purpose “connected” means connected in a matter relating to the
structure, administration or control of a charity.
557
Substantial donor transactions: supplementary
(1)
In sections 549 to 555—
(a)
a reference to a substantial donor or other person includes a reference
35
to a person connected with the donor or other person,
(b)
“financial assistance” includes, in particular—
(i)
the provision of a loan, guarantee or indemnity, and
(ii)
entering into alternative finance arrangements within the
meaning of section 46 of FA 2005, and
40
(c)
a reference to a gift of a specified amount includes a reference to a non-
monetary gift of that value.

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(2)
On an appeal against an assessment the Special Commissioners may affirm or
replace a decision of an officer of Revenue and Customs under section 551 or
554.
(3)
The Treasury may by regulations vary a sum, or a period of time, specified in
section 549(2).
5
Approved charitable investments and loans
558
Approved charitable investments

An investment is an approved charitable investment for the purposes of
section 543 (meaning of “non-charitable expenditure”) if it is an investment of
any of the following types.
10
Type 1

An investment to which section 559 applies.
Type 2

An investment in a common investment fund established under—
(a)
section 22 of the Charities Act 1960 (c. 58),
15
(b)
section 24 of the Charities Act 1993 (c. 10), or
(c)
section 25 of the Charities Act (Northern Ireland) 1964.
Type 3

An investment in a common deposit fund established under—
(a)
section 22A of the Charities Act 1960, or
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(b)
section 25 of the Charities Act 1993.
Type 4

An investment in a fund which—
(a)
is similar to a fund mentioned in relation to Type 2 or 3, and
(b)
is established for the exclusive benefit of charities by or under a
25
provision relating to any particular charities or class of charities
contained in an Act.
Type 5

An interest in land, other than an interest held as security for a debt.
Type 6
30

Any of the following issued by Her Majesty’s Government in the United
Kingdom—
(a)
bills,
(b)
Certificates of Tax Deposit,
(c)
Savings Certificates, and
35
(d)
Tax Reserve Certificates.
Type 7

Northern Ireland Treasury Bills.

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Type 8

Units in a unit trust scheme (as defined in section 237(1) of FISMA 2000) or in
a recognised scheme (as defined in section 237(3) of FISMA 2000).

“Units” is defined in section 237(2) of FISMA 2000.
Type 9
5

A deposit with a bank (as defined in section 991)—
(a)
in respect of which interest is payable at a commercial rate, and
(b)
which is not made as part of an arrangement under which a loan is
made by the bank to some other person.
Type 10
10

A deposit with—
(a)
the National Savings Bank,
(b)
a building society, or
(c)
a credit institution which operates on mutual principles and which is
authorised by an appropriate governmental body in the territory in
15
which the deposit is taken.
Type 11

Certificates of deposit (including uncertificated eligible debt security units as
defined in section 986(3)).
Type 12
20

A loan or other investment as to which an officer of Revenue and Customs is
satisfied, on a claim, that it is made for the benefit of the charitable trust and
not for the avoidance of tax (whether by the trust or any other person).
559
Securities which are approved charitable investments
(1)
The investments to which this section applies are investments in securities—
25
(a)
issued or guaranteed by the government of a member State of the
European Union,
(b)
issued or guaranteed by the government or a governmental body of
any territory or part of a territory,
(c)
issued by an international entity listed in the Annex to Council
30
Directive 2003/48/EC (directive on taxation of interest payments),
(d)
issued by an entity meeting the four criteria set out at the end of that
Annex,
(e)
issued by a building society,
(f)
issued by a credit institution which operates on mutual principles and
35
which is authorised by an appropriate governmental body in the
territory in which the securities are issued,
(g)
issued by an open-ended investment company,
(h)
issued by a company and listed on a recognised stock exchange, or
(i)
issued by a company but not listed on a recognised stock exchange.
40
(2)
Subsection (1) is subject to section 560.
(3)
In this section and in section 560—
“debentures” includes—

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(a)
debenture stock and bonds (whether constituting a charge on
assets or not), and
(b)
loan stock or notes,
“open-ended investment company” is to be read in accordance with
section 468A(2) to (4) of ICTA,
5
“securities” includes shares and debentures, and
“shares” includes stocks.
560
Conditions to be met for some securities
(1)
Section 559 does not apply to an investment by virtue of subsection (1)(b), (c)
or (d) of that section unless—
10
(a)
condition A is met in relation to the securities, and
(b)
if the securities are shares or debenture stock, condition B is met in
relation to the securities.

But see subsection (3) of this section.
(2)
In the case of an investment in securities issued by a company which is
15
incorporated, section 559 does not apply to the investment by virtue of
subsection (1)(i) of that section unless—
(a)
condition A is met in relation to the securities,
(b)
if the securities are shares or debenture stock, condition B is met in
relation to the securities, and
20
(c)
condition C is met in relation to the company.

But see subsection (3) of this section.
(3)
Conditions A and B need not be met if the securities are traded or quoted on a
money market supervised by the government or a governmental body of any
territory or part of a territory.
25
(4)
Condition A is that the securities are traded or quoted on—
(a)
a recognised investment exchange (as defined in section 285(1) of
FISMA 2000), or
(b)
an investment exchange which constitutes the principal or only market
established in a territory on which securities admitted to official listing
30
are dealt in or traded.
(5)
Condition B is that—
(a)
the securities are fully paid up,
(b)
the terms of the issue of the securities require them to be fully paid up
within the period of 9 months beginning with the day after the day on
35
which they are issued, or
(c)
the securities are shares issued with no nominal value.
(6)
Condition C is that—
(a)
throughout the last business day before the investment day, the
company has total issued and paid up share capital of at least
40
£1,000,000 (or the equivalent of £1,000,000 in some other currency), and
(b)
in each of the five years immediately before the calendar year in which
the investment day falls, the company paid a dividend on all the shares
issued by the company (excluding any shares issued after the dividend
was declared and any shares which by their terms of issue did not rank
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for dividend for that year).