Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 6 — Charitable donations relief
Chapter 2 — Certain payments to charity
103

197
Restrictions on associated benefits
(1)
For the purposes of this Chapter the restrictions on benefits associated with a
payment are breached if condition A or B is met.
(2)
Condition A is that the total value of the benefits associated with the payment
exceeds the variable limit, which is—
5
(a)
25% of the amount of the payment, if the amount of the payment is £100
or less,
(b)
£25, if the amount of the payment is more than £100 but not more than
£1,000,
(c)
5% of the amount of the payment, if the amount of the payment is more
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than £1,000.
(3)
Condition B is that the sum of the following total values is more than £500—
(a)
the total value of the benefits associated with the payment, and
(b)
the total value of the benefits (if any) associated with each relevant
prior payment.
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(4)
A relevant prior payment is a payment—
(a)
which has already been made by the company to the charity in the
accounting period, and
(b)
which is a qualifying payment.
(5)
This section needs to be read with section 198.
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198
Payments and benefits linked to periods of less than 12 months
(1)
This section modifies the application of section 197(2) in relation to a payment
if condition A, B, C or D is met.
(2)
Condition A is that a benefit associated with the payment relates to a period of
less than 12 months.
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(3)
Condition B is that a benefit associated with the payment consists of a right to
receive benefits at intervals over a period of less than 12 months.
(4)
Condition C is that a benefit associated with the payment is one of a series of
benefits which are—
(a)
received at intervals, and
30
(b)
associated with a series of payments made at intervals of less than 12
months.
(5)
Condition D is that—
(a)
a benefit associated with the payment is not one of a series of benefits
received at intervals, and
35
(b)
the payment is one of a series of payments made at intervals of less than
12 months.
(6)
If condition A, B or C is met, then for the purposes of section 197(2)—
(a)
the value of the benefit is taken to be the annual equivalent of its actual
value, and
40
(b)
the amount of the payment is taken to be the annual equivalent of its
actual amount.

Corporation Tax Bill
Part 6 — Charitable donations relief
Chapter 2 — Certain payments to charity
104

(7)
If condition D is met, the amount of the payment is taken for the purposes of
section 197(2) to be the annual equivalent of its actual amount.
(8)
The annual equivalent of the value of a benefit, or of the amount of a payment,
is found as follows.

5

Step 1

Multiply the value or amount by 365.


Step 2

If condition A or B is met in relation to the benefit (and neither condition C nor
10
condition D is met in relation to it) divide the result by the number of days in
the period of less than 12 months referred to in subsection (2) or (as the case
may be) subsection (3).


If condition C or D is met in relation to the benefit, divide the result by the
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average number of days in the intervals of less than 12 months referred to in
subsection (4)(b) or (as the case may be) subsection (5)(b).
Payment attributed to earlier period
199
Payment attributed to earlier accounting period
(1)
This section applies if—
20
(a)
a company makes a qualifying payment,
(b)
the company is wholly owned by a charity, and
(c)
the company makes a claim for the payment (or part of it) to be treated
as a qualifying charitable donation made in an accounting period
falling wholly or partly within the period of 9 months ending with the
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date of the making of the payment.
(2)
The payment (or part) is to be treated for corporation tax purposes as a
qualifying charitable donation made in that accounting period and not in any
later period.
(3)
A claim must be made within the period of two years immediately following
30
the accounting period in which the payment is made or such longer period as
an officer of Revenue and Customs may allow.
Interpretation
200
Company wholly owned by a charity
(1)
For the purposes of this Chapter a company is wholly owned by a charity if
35
condition A or B is met.
(2)
Condition A is that—
(a)
the company has an ordinary share capital, and
(b)
every part of that share capital is owned by a charity (whether or not
the same charity).
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(3)
Condition B is that—
(a)
the company is limited by guarantee, and

Corporation Tax Bill
Part 6 — Charitable donations relief
Chapter 3 — Certain disposals to charity
105

(b)
every beneficiary of the company is or must be a charity or a company
wholly owned by a charity.
(4)
Ordinary share capital of a company is treated as owned by a charity if a
charity—
(a)
directly or indirectly owns that share capital within the meaning of
5
Chapter 3 of Part 24, or
(b)
would be taken so to own it if references in that Chapter to a body
corporate included references to a charity which is not a body
corporate.
(5)
A beneficiary of a company is a person who—
10
(a)
is beneficially entitled to participate in the company’s divisible profits,
or
(b)
will be beneficially entitled to share in any of the company’s net assets
available for distribution on its winding up.
201
Associated persons
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For the purposes of this Chapter a person is associated with a company if the
person is connected with—
(a)
the company, or
(b)
a person connected with the company.
202
“Charity”
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In this Chapter “charity” means—
(a)
a body of persons or trust established for charitable purposes only,
(b)
a scientific research association (as defined in section 469),
(c)
the Trustees of the National Heritage Memorial Fund,
(d)
the Historic Buildings and Monuments Commission for England, or
25
(e)
the National Endowment for Science, Technology and the Arts.
Chapter 3
Certain disposals to charity
Amounts treated as qualifying charitable donations
203
Certain disposals of investments
30
(1)
This section applies if—
(a)
a company disposes of the whole of the beneficial interest in a
qualifying investment to a charity,
(b)
the disposal is otherwise than by way of a bargain made at arm’s
length,
35
(c)
the company is not itself a charity, and
(d)
the company makes a claim.
(2)
The relievable amount is treated for corporation tax purposes as a qualifying
charitable donation made by the company in the accounting period in which
the disposal is made.
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Corporation Tax Bill
Part 6 — Charitable donations relief
Chapter 3 — Certain disposals to charity
106

(3)
No relief in respect of the disposal is to be given under section 105 of CTA 2009
(gifts of trading stock to charities etc).
(4)
For the calculation of the relievable amount, see section 206.
(5)
If the qualifying investment is a qualifying interest in land, this section is
subject to—
5
section 213 (certificates),
section 214 (qualifying interests in land held jointly),
section 215 (calculation of relievable amount etc where joint disposal), and
section 216 (disqualifying events).
204
Meaning of qualifying investment
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(1)
In this Chapter “qualifying investment” means any of the following—
(a)
shares or securities which are listed on a recognised stock exchange or
dealt in on a designated market in the United Kingdom,
(b)
units in an authorised unit trust,
(c)
shares in an open-ended investment company,
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(d)
an interest in an offshore fund, and
(e)
a qualifying interest in land.
(2)
In this section—
“offshore fund” has the meaning given by section 355 of TIOPA 2010, and
“open-ended investment company” is to be read in accordance with
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sections 613 and 615.
(3)
In paragraph (a) of subsection (1) “designated” means designated by an order
made by the Commissioners for Her Majesty’s Revenue and Customs for the
purposes of that paragraph.
(4)
An order under subsection (3)—
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(a)
may designate a market by name or by reference to a class or
description of market,
(b)
may vary or revoke a previous order under that subsection.
205
Meaning of qualifying interest in land
(1)
In this Chapter “qualifying interest in land” means—
30
(a)
a freehold interest in land in the United Kingdom, or
(b)
a leasehold interest in land in the United Kingdom which is a term of
years absolute.

This is subject to subsections (2) to (5).
(2)
Subsection (3) applies if a company with a beneficial interest in a freehold or
35
leasehold interest mentioned in subsection (1)(a) or (b) makes a disposal to a
charity of—
(a)
the whole of the beneficial interest, and
(b)
an easement, servitude, right or privilege so far as benefiting the land
in question.
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(3)
The disposal mentioned in subsection (2)(b) is regarded for the purposes of this
Chapter as a disposal by the company of the whole of its beneficial interest in

Corporation Tax Bill
Part 6 — Charitable donations relief
Chapter 3 — Certain disposals to charity
107

a qualifying interest in land separate from the disposal mentioned in
subsection (2)(a).
(4)
If a company which has a freehold or leasehold interest in land in the United
Kingdom grants a lease for a term of years absolute to a charity of the whole or
part of the land, the grant of the lease is regarded for the purposes of this
5
Chapter as a disposal by the company of the whole of the beneficial interest in
the leasehold interest so granted.
(5)
Neither an agreement to acquire a freehold interest nor an agreement for a
lease is a qualifying interest in land.
(6)
In the application of this section to Scotland—
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(a)
references to a freehold interest in land are to the interest of the owner,
(b)
references to a leasehold interest in land which is a term of years
absolute are to a tenant’s right over or interest in a property subject to
a lease,
(c)
references to an agreement for a lease do not include missives of let that
15
constitute an actual lease, and
(d)
the reference in subsection (4) to granting a lease for a term of years
absolute is to granting a lease.
206

The relievable amount

(1)
If the disposal is a gift, the relievable amount is given by the formula

20

where—
V is the value of the net benefit to the charity at, or immediately after, the
time when the disposal is made (whichever is less),
IC is the amount of the incidental costs of making the disposal to the
company making it, and
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B is the total value of any benefits received in consequence of making the
disposal by the company making the disposal or a person connected
with the company.
(2)
If the disposal is at an undervalue, the relievable amount is given by the

formula—

30

where—
E is the amount (if any) by which V (as defined in subsection (1)) exceeds
the amount or value of the consideration for the disposal,
C is given by subsection (4), and
B is as defined in subsection (1).
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Corporation Tax Bill
Part 6 — Charitable donations relief
Chapter 3 — Certain disposals to charity
108

(3)
But if the amount given by the formula in subsection (1) or (2) is a negative
amount, the relievable amount is nil.
(4)
C is found as follows.


Step 1
5

Calculate the consideration for which the disposal is treated as made for the
purposes of TCGA 1992 as a result of section 257(2)(a) of that Act (in case of
disposal to charity etc, consideration to be such that no gain or loss accrues).


Step 2
10

Find the excess (if any) of the amount calculated at step 1 over the amount or
value of the consideration for the disposal.


If there is such an excess, C is the amount of that excess or, if less, the amount
of the incidental costs of making the disposal to the company making it.
15


If there is no such excess, C is nil.
(5)
This section needs to be read with—
(a)
section 207 (incidental costs of making disposal),
(b)
section 208 (consideration), and
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(c)
sections 209 to 212 (value of net benefit to charity).
207
Incidental costs of making disposal
References in section 206 to the incidental costs of making the disposal to the
company making it are to—
(a)
fees, commission or remuneration paid for the professional services of
25
a surveyor, valuer, auctioneer, accountant, agent or legal adviser which
are wholly and exclusively incurred by the company for the purposes
of the disposal,
(b)
costs of transfer or conveyance wholly and exclusively incurred by the
company for the purposes of the disposal,
30
(c)
costs of advertising to find a buyer, and
(d)
costs reasonably incurred in making any valuation or apportionment
required for the purposes of this Chapter.
208
Consideration
If the disposal is at an undervalue, section 48 of TCGA 1992 (consideration due
35
after time of disposal) applies in relation to the calculation of the relievable
amount as it applies in relation to the calculation of a gain.
Value of net benefit to charity
209
Value of net benefit to charity
(1)
For the purposes of this Chapter the value of the net benefit to a charity is—
40
(a)
the market value of the qualifying investment, or

Corporation Tax Bill
Part 6 — Charitable donations relief
Chapter 3 — Certain disposals to charity
109

(b)
if the charity is, or becomes, subject to a disposal-related obligation, the
market value of the qualifying investment reduced by the total amount
of the disposal-related liabilities of the charity.
(2)
This section is supplemented by—
(a)
section 210 (market value of qualifying investments),
5
(b)
section 211 (meaning of disposal-related obligation), and
(c)
section 212 (meaning and amount of disposal-related liability).
210
Market value of qualifying investments
(1)
For the purposes of this Chapter the market value of a qualifying investment is
determined in accordance with sections 272 to 274 of TCGA 1992 (subject to
10
Part I of Schedule 11 to that Act).
(2)
But, in the case of an interest in an offshore fund for which separate buying and
selling prices are published regularly by the managers of the fund, the market
value for the purposes of this Chapter is an amount equal to the buying price
(that is the lower price) published on—
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(a)
the day of the disposal, or
(b)
if none were published on that day, the latest day on which the prices
were published before that day.
(3)
In this section “offshore fund” has the meaning given by section 355 of TIOPA
2010.
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211
Meaning of “disposal-related obligation”
(1)
For the purposes of this Chapter an obligation is a “disposal-related
obligation”, in relation to a qualifying investment, if condition A or B is met in
relation to it.
(2)
The obligation may be to any person (whether or not the company making the
25
disposal or a person connected with it).
(3)
Condition A is that it is reasonable to suppose that the disposal of the
qualifying investment to the charity would not have been made in the absence
of the obligation.
(4)
Condition B is that the obligation (whether in whole or in part) relates to, is
30
framed by reference to, or is conditional on the charity receiving, the qualifying
investment or a disposal-related investment.
(5)
In applying condition A all the circumstances must be taken into account
(including in particular the difference in the value of the net benefit to the
charity calculated under section 209(1)(a) and that value calculated under
35
section 209(1)(b) on the assumption that the obligation under consideration is
a disposal-related obligation).
(6)
In subsection (4) “disposal-related investment” means any of the following—
(a)
an asset of the same class or description as the qualifying investment
(irrespective of size, quantity or amount),
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(b)
an asset derived from, or representing, the qualifying investment,
whether in whole or in part and whether directly or indirectly, and