Office of Public Sector Information
1162.This section makes provision for the lender of a loan covered by this Chapter to provide information to the borrower on request. It is based on section 366 of ICTA.
1163.The source legislation requires the person claiming relief to submit to an officer of Revenue and Customs a written certificate from the lender containing details of the debt and interest. Under Self Assessment, such statements are not generally required. Such a certificate will only be required when an officer raises enquiries into the return or the claim. The provision has therefore been recast in terms of the claimant being able to obtain a certificate from the lender if he or she needs or wants to do so. Lenders will no longer need to issue certificates routinely.
1164.This Chapter gives relief for some gifts of money by individuals to charities. It is based on section 25 of FA 1990, section 98 of FA 2002 and section 83 of FA 2004.
1165.This section provides an overview of the Chapter. It is new.
1166.Subsection (2) points to section 414, which sets out how the relief works.
1167.Under section 414(2)(a), the gift is treated as paid after deduction of income tax. If the tax treated as deducted from the gift is greater than the income tax and capital gains tax to which the individual is liable, the excess is recovered. Under these rules, signposted by subsection (3):
the donor may suffer the restriction of certain other reliefs (including personal allowances); and
if the tax treated as deducted from gifts exceeds the income tax and capital gains tax to which the donor is liable, additional income tax will be charged.
1168.The position of the charity receiving the gift is not addressed in this Chapter. The rules about charitable trusts are in Part 10 of this Act. The rules about charitable companies remain in the source legislation, as indicated by subsection (5).
1169.This section sets out the relief. It is based on section 25(6) of FA 1990.
1170.Subsection (1) sets out the basic requirement for the relief, which is that the gift should be a “qualifying donation” (see section 416).
1171.Subsection (2)(b) provides that the individual’s basic rate limit is increased by the amount of the gift grossed up at the basic rate of income tax. As a result, an amount of income up to that amount is taxed at either the dividend ordinary rate, the savings rate or the basic rate, rather than at the higher rate or the dividend upper rate.
1172.If “top slicing relief” is claimed on gains under life assurance policies etc (sections 535 to 537 of ITTOIA), relief under this Chapter is ignored for the purposes of the computations required by section 535(1) of ITTOIA. See section 535(7) of ITTOIA, inserted by Schedule 1 to this Act.
1173.This section provides the meaning of references to “the grossed up amount” of a gift. It is based on section 25(12)(d) of FA 1990.
1174.This section sets out the meaning of “qualifying donation”. It is based on section 25(1) and (2) of FA 1990.
1175.Condition C excludes the possibility of a double claim for relief under these provisions and also under the payroll deduction scheme.
1176.Condition D enacts the principle that, to be a qualifying donation, the payment must not also be deductible in arriving at the individual donor’s income from any source. See Change 76 in Annex 1.
1177.Condition E denies relief if the donor, or any person associated with the donor, disposes of any property to the charity for any consideration. This prevents any overlap between this relief and the relief for gifts of assets in Chapter 3 of this Part.
1178.This section defines what is meant by one or more benefits being “associated with” a gift. It is based on section 25(2) and (4) of FA 1990.
1179.This section sets out two conditions which, if either is met, mean that the restrictions on benefits associated with a gift are breached (condition F of section 416). It is based on section 25(2), (4), (5) and (5A) of FA 1990.
1180.The two conditions are:
a stepped scale, depending on the amount of each gift (Condition A) – the “benefit per gift” test; and
an overall monetary limit on benefits associated with the total of any gifts to a single charity in the course of a tax year – the “benefit per year” test (Condition B). This is unrelated to the size of any particular gift.
1181.Both these restrictions apply to any benefit “associated with” a gift. Sections 420 and 421 remove certain benefits consisting of admission rights from the application of both restrictions.
1182.This section modifies the application of section 418(2) where gifts or benefits are linked to periods of less than 12 months. It is based on section 25(5B) to (5D) of FA 1990.
1183.The section provides, according to the case, for annualising:
the actual amount of the gift; or
both the amount of the gift and the value of the benefit(s) associated with the gift.
1184.Only the annualised amount in each case is to be compared with the cash limits given in section 418(2). This prevents periods of less than 12 months being used to exploit the cash limits.
1185.Subsection (8) states the formula for annualising in each case. In the source legislation some of the conditions in the section could overlap, so that more than one condition could apply to the gift(s) and associated benefit(s) concerned. A priority rule is, therefore, provided. See Change 77 in Annex 1.
1186.This section ensures that a benefit consisting of a relevant admission right is ignored for the purposes of the Chapter, so that a donation to a charity with which such a benefit is associated may be a qualifying donation regardless of the value of the benefit. It is based on section 25(5E) to (5I) of FA 1990.
1187.Condition B contains no general qualification relating to the purposes of the recipient charity. But property, as defined in subsection (6), must be preserved, maintained, kept or created by the charity for those charitable purposes.
1188.In Condition C (further provisions about which are in section 421(2) to (4)), the right of admission must apply for at least 12 months whenever admission is available to members of the public who have not made such a gift.
1189.But in Condition D there is no time period. For the meaning of the “same right of admission” see section 421(5).
1190.This section provides supplementary material about Conditions C and D in section 420. It is based on section 25(5I) and (5J) of FA 1990.
1191.Subsections (2) to (4) deal with cases when event days could be held to interrupt the availability of a right of admission, reducing it to a period of less than 12 months and thus breaching Condition C. The applicable period is not regarded as broken if there are no more than five event days in it.
1192.This section provides the rules for Condition G in section 416(8). It is based on section 25(2) of FA 1990.
1193.In addition to the other conditions for a qualifying donation in sections 416 to 421, this section imposes a specific test that must be met in the case of a gift (an “overseas gift”) made by a donor who is neither UK resident nor in Crown employment.
1194.The source legislation provides that, for the gift to be a qualifying donation, its grossed up amount would, if paid, be “payable out of profits or gains brought into charge to income tax or capital gains tax”. This is rewritten as a reference to the gift being disqualified if it results in the sum of the grossed up amounts of any overseas gifts being more than the individual’s charged amount (see section 427) for the tax year. This is in keeping with the approach adopted towards the parallel rule in the source legislation for charges on income in its application to individuals (see Change 81 in Annex 1 and the commentary on section 425).
1195.This section restricts certain reliefs, where necessary to ensure that the individual pays enough tax to match any tax which might be refunded to the charities receiving the gifts. It is based on section 25(6)(c) of FA 1990.
1196.The section operates if the amount of income tax treated as deducted from an individual’s gifts, “amount A” insubsection (2), is greater than “amount B”.
1197.The source legislation does not expressly say how “amount B” is to be calculated. This section makes clear that the only difference between “amount B” (from section 25(6)(c) of FA 1990) and “amount C” in section 424 (from section 25(9) of that Act) is that “amount B” is calculated before any restriction of personal reliefs under this section. See Change 78 in Annex 1 and the commentary on section 425.
1198.So “amount B” is:
the income tax liability as defined in section 425 but before applying any reduction in reliefs under this section; plus
the capital gains tax liability.
1199.Section 25(6)(b) and (7) of FA 1990 are not rewritten. These provisions relate to certain of the tax reductions listed in section 27(5) of this Act. The effect of the relevant provisions in section 25(6)(b) and (7) of FA 1990 is achieved by the operation of sections 23 and 425(2) of this Act.
1200.The reliefs listed in subsection (5) are to be reduced only to the extent necessary. If all such available reliefs are extinguished and the liability still falls short of amount A, a charge to income tax arises under section 424.
1201.This section operates to charge the donor with income tax in the amount of any remaining shortfall after the operation of section 423. It is based on section 25(8) of FA 1990.
1202.Instead of “amount B” as in section 423, the comparison is now with “amount C”, which is the tax liability after applying section 423. That liability includes the income tax liability as adjusted in accordance with section 425.
1203.The charging provision operates directly in terms of an amount of tax, rather than (as in the source legislation) by way of charging an amount of deemed income.
1204.This section provides for the adjustments to the individual donor’s income tax liability in order to arrive at “amount B” in section 423 and “amount C” in section 424. It is based on section 25(9) of FA 1990.
1205.As part of the clarification of how these amounts are calculated, section 25(9)(c) of FA 1990 has been dropped as anomalous. See Change 78 in Annex 1 and the commentary on section 423.
1206.Section 25(9)(a) of FA 1990 is not rewritten. That provision dealt with tax charged at the basic rate by virtue of sections 348 or 349 of ICTA. As a result of the new approach to charges on income such tax is no longer dealt with as part of a person’s liability. See Change 81 in Annex 1.
1207.This section provides that an individual may elect that a qualifying donation made in one tax year be treated as having been made in the preceding tax year (“year P”). It is based on section 98 of FA 2002.
1208.A test similar to that in section 422 must be met in year P for an election to be valid. Because of the possibility that other qualifying donations will have been made in year P, and will not themselves have been carried back to “year P minus 1”, the language in which the test is expressed differs slightly from that in section 422. Hence the references to the “increased total of gifts”.
1209.Subsection (4), concerning the increased total of gifts, also has to take into account the possibility that elections are made when a notice under section 8 of TMA has not been issued and there is no other legal duty to notify liability to tax or file a self-assessment return. In that case, instead of being included in the self-assessment return under section 42(2) of TMA, elections may be made otherwise (under Schedule 1A to TMA), which opens up the possibility of a number of elections being made in respect of separate donations in the same year.
1210.In the case of non-residents to whom section 422 applies, if a donation does not meet the test set out in section 422(3) in the tax year in which the gift is made, it cannot be carried back in this way. In such a case the donation would not be “qualifying” and so would fail the condition in subsection (1)(a) of this section.
1211.An election must be made before the actual filing date of the self-assessment tax return for year P (if a self-assessment return is made for that year), and in any case before the normal self-assessment filing date for year P. The requirement in section 98(2) of FA 2002 that the election “be made by notice in writing to an officer of the Inland Revenue” is catered for by paragraph 2(1) of Schedule 1A to TMA.
1212.In all cases the charity is treated as receiving the donation, not in year P, but in the tax year of payment. It is in respect of the year of payment that the charity will, if appropriate, be entitled to an income tax repayment in respect of the donation.
1213.This section provides the basic calculation rules to establish the individual’s charged amount for the purposes of the tests in sections 422 and 426. It is based on section 25(2) of FA 1990 and section 98(3) of FA 2002.
1214.The detailed rules for establishing the individual’s modified net income are contained in section 1025 in Part 17, which defines this term (as used in subsection (2) of this section) for this and certain other purposes. See the commentary on that section.
1215.The basic rule is to add together the “modified net income” established under section 1025 and the amount on which the individual is chargeable to capital gains tax. This amount is then compared with the “overseas gifts total” in section 422(4), or the “increased total of the gifts” in section 426(4), as appropriate.
1216.This section provides the definition of “gift aid declaration” in section 416(1)(b), and states the powers under which the Commissioners for Her Majesty’s Revenue and Customs may make related regulations. It is based on section 25(3) and (3A) of FA 1990.
1217.The regulations currently in force for these provisions are:
the Donations to Charity by Individuals (Appropriate Declarations) Regulations 2000 (SI 2000/2074); and
the Donations to Charity by Individuals (Appropriate Declarations) (Amendment) Regulations 2005 (SI 2005/2790), which remove the requirement on charities to send to donors a written record of their oral declarations.
1218.This section makes provision for individuals to require all or part of any tax repayment arising as a result of a self-assessment return to be paid to a listed charity. It is based on section 83 of FA 2004.
1219.For the effect of this provision where the gift is received by a charitable trust, see section 538(3) and the commentary on that section.
1220.This section provides that the bodies mentioned in subsection (1) are to be treated as charities for the purposes of this Chapter. It is based on section 507(1) of ICTA, section 25(12) of FA 1990 and paragraph 9 of Schedule 18 to FA 2002.
1221.References to the Trustees of the British Museum and of the Natural History Museum appear in section 507(1) of ICTA along with the other three bodies named in subsection (1)(a) to (c) of this section. Section 507 gives exemption to all the bodies named there from corporation tax in line with the exemptions afforded to charities under section 505 of ICTA.
1222.By contrast, the ability to receive gift aid donations is given to any charity if the purposes for which it is established are fully charitable. In the case of the British Museum and the Natural History Museum this is so: see the relevant sections of the British Museum Act 1963. But in the other cases it is more doubtful whether their functions as set out in their foundation Acts are solely charitable. So it is only the names of those bodies which are included in this section. See Change 79 in Annex 1.
1223.Similar provisions apply in the case of gifts of shares, securities and land to charities: see section 446 in Chapter 3 of this Part.
1224.This Chapter gives relief to individuals making gifts of shares, securities and real property to charities, or disposing of such assets to charities at an undervalue. It is based on sections 587B and 587C of ICTA 1988.
1225.This section sets out the relief. It is based on section 587B(1) and (2) of ICTA.
1226.Subsection (1) provides that relief is available if an individual disposes of the whole of the beneficial interest in a qualifying investment to a charity and makes a claim. The rule in section 587B(2) of ICTA that the claim must “be made to an officer of the Inland Revenue” is catered for by paragraph 2(1) of Schedule 1A to TMA.
1227.Subsection (2) provides that relief for the “relievable amount” is given as a deduction in calculating net income.
1228.If “top slicing relief” is claimed on gains under life assurance policies etc (sections 535 to 537 of ITTOIA), relief under this Chapter is ignored for the purposes of the computations required by section 535(1) of ITTOIA. See section 535(7) of ITTOIA, inserted by Schedule 1 to this Act.
1229.This section lists the types of investment that can attract relief. It is based on section 587B(9) of ICTA.
1230.This section defines “qualifying interest in land”. It is based on section 587B(9A) to (9E) of ICTA.
1231.Subsections (2) and (3) clarify the position where an individual with a beneficial interest in an estate in land gives that beneficial interest to a charity along with any easement, servitude or right that benefits the land. For example, A’s land may only be accessible by way of an easement over B’s land. If A gives the charity both the land and the right over B’s land, the disposal of the right is treated as a separate disposal.
1232.If an individual with a freehold or leasehold interest carves out of that interest a lease for the benefit of the charity, the retention of a freehold or leasehold reversion will not prevent the disposal from being “of the whole of the beneficial interest”. But an agreement to acquire a freehold, or an agreement for a lease, is not enough to constitute a disposal.
1233.This section sets out how to calculate the relievable amount, firstly in cases where the qualifying investment is transferred to the charity by way of gift (subsection (1)), and then where there is consideration for the transfer (subsection (2)). It is based on section 587B(4) to (7) of ICTA.
1234.In each case, the computation starts with the value of the net benefit to the charity (V), either directly (as in subsection (1)) or in arriving at E (the excess of V over the consideration for the disposal) in subsection (2).
1235.The detail of how V is calculated is in sections 437 to 440. But it is emphasised in the definition of V in subsection (1) that V must be considered both at, and immediately after, the time of the disposal.
1236.Subsection (3) makes it explicit that if the amount given by either formula is negative the relievable amount is nil.
1237.The treatment of incidental costs of disposal depends on whether the transfer is by way of gift or at an undervalue. If it is a gift, all the incidental costs are added in arriving at the relievable amount. But if there is consideration for the disposal, there is an interplay between the capital gains tax treatment and the incidental costs.
1238.Under section 257(2)(a) of TCGA a gift of a qualifying investment to a charity is treated as being for such a consideration as will result in neither a loss nor a gain to the donor. Incidental costs are added only if that deemed consideration is greater than the actual consideration. But the amount added must not be greater than that excess. C is defined (in subsection (4)) to achieve this result.
1239.This section defines “the incidental costs of making the disposal to the individual making it”. It is based on section 587B(9) of ICTA.
1240.The section reproduces the material in section 38(2) of TCGA to which section 587B(9) cross-refers, with the exception of the reference to stamp duty and stamp duty land tax, which do not apply to transactions within this Chapter.
1241.This section defines “consideration”. It is based on section 587B(7)(b) of ICTA.
1242.The section reproduces the relevant material in section 48 of TCGA (consideration due after time of disposal), to which section 587B(7)(b) cross-refers. The main thrust of section 48 of TCGA is that full value is to be introduced into the computation of the gain. Only on a subsequent claim is the consideration to be reduced, either because the right to receive any amount is contingent or because any part of the consideration proves to be irrecoverable.
1243.This section is the first of four sections concerned with defining the value of the net benefit to the charity. It is based on section 587B(8A) and (8B) of ICTA.
1244.In the simple case, where there are no disposal-related obligations, the value of the net benefit to the charity is the market value of the qualifying investment. As indicated in section 434, this has to be considered both at, and immediately after, the disposal.
1245.If the charity is, or becomes, subject to an obligation that is connected with the disposal of the qualifying investment to the charity, the market value of the investment is reduced by the amount of the disposal-related liabilities (see section 440) brought about by the obligation. These obligations also must be considered both at, and immediately after, the disposal.
1246.This section sets out how the market value of qualifying investments is to be determined. It is based on section 587B(10) and (11) of ICTA.
1247.The methods are those laid down in sections 272 to 274 of TCGA. If an offshore fund publishes buy and sell prices, it is in effect subject to the same treatment as a unit trust scheme as laid down by section 272(5) of TCGA. The provisions of that subsection are reproduced here.
1248.This section defines “disposal-related obligation”. It is based on section 587B(8B) to (8D) and (9) of ICTA.
1249.The obligation undertaken by the charity may be any scheme, arrangement or understanding of any kind, regardless of whether it is legally enforceable. The word “obligation” also includes a reference to a series of obligations, whether or not between the same persons. It may also be contingent (see section 440(2)).
1250.This section defines “disposal-related liability”. It is based on section 587B(8E) to (8G) of ICTA.
1251.Subsection (2) deals with contingent disposal-related obligations.
1252.It is in the nature of a contingency that it may occur after the time of disposal; hence the words “at any time”. If a contingency occurs later than immediately after the disposal, but existed as a possibility at the time of disposal, the value of the net benefit to the charity at the time of, or immediately after, the disposal must be reduced; and all necessary adjustments must be made to give effect to this. Conversely, if the contingency does not occur, to that extent there will be no obligation and no liability.
1253.This section, which is the first of four that deal specifically with qualifying interests in land, requires any claim for relief in relation to a qualifying interest in land to be supported by a certificate from the charity. It is based on section 587C(1), (4) and (5) of ICTA.
1254.This section deals with land held by joint tenants or by tenants in common. It is based on section 587C(1) to (3) of ICTA.
1255.Relief is given only if each joint tenant, or tenant in common, disposes of the whole of that person’s beneficial interest in the land. This applies whether the relief is claimed by an individual under this Chapter, or by a company under sections 587B and 587C of ICTA.
1256.It is provided that there must be an agreement between all the tenants eligible for relief (whether individuals or not, and whether joint or in common) as to the share of the relief attributable to each tenant. To the extent that there is no such agreement between the owners entitled to relief, there is no relief under this Chapter, or under sections 587B and 587C of ICTA.
1257.The relief is available to individuals under this Chapter and to companies under sections 587B and 587C of ICTA, but not to other persons. So it is necessary in the case of joint disposals to set out a method to determine whether all beneficial interests have been disposed of. To that end, and to ensure that the total relief given under this Chapter and the corresponding provisions of ICTA is not excessive, it is provided that, for this purpose only, the rules defining “qualifying interest in land” in section 433(2) to (4) are to apply to all owners as if they were individuals. See also Change 80 in Annex 1 and the commentary on section 443.
1258.This section provides details of the method of calculation of the “relievable amount” in cases where there is a joint disposal of an interest in land. It is new.
1259.The method involves calculating the relievable amount as if there is a disposal by a single person, and then adjusting the amount to take account of only those owners who qualify for relief. See Change 80 in Annex 1.
1260.This section provides for the recovery of relief if a “disqualifying event” occurs within the “provisional period”. It is based on section 587C(1) and (6) to (10) of ICTA.
1261.In the simplest case, such an event occurs if any of the persons who made the disposal are entitled to buy the land back from the charity at an undervalue.
1262.This section establishes the priority of this Chapter over any other provisions under which relief might be claimed. It is based on section 587B(2)(b) of ICTA.
1263.Subsection (2) is a signpost to the effect on the chargeable gains position of the charity of the rules in section 587B(3) of ICTA. See section 257 of TCGA as amended by Schedule 1 to this Act.
1264.This section extends the relief given by the Chapter to certain bodies set up by Act of Parliament even though they are not charities. It is based on section 587B(9) of ICTA.
1265.The references to the British Museum and the Natural History Museum (originally in section 507(1) of ICTA, to which section 587B(9) of that Act cross-refers) are no longer required, since those bodies are established for charitable purposes. Their omission does not affect the exemption from corporation tax given by section 507 of ICTA. See Change 79 in Annex 1 and the commentary on section 430.
1266.This Chapter provides for relief for certain annual payments and patent royalty payments by deduction in calculating net income. These rules are coupled with those providing for deduction of tax at source from the payments: see Chapter 6 of Part 15 and the related commentary.
1267.The scheme of the source legislation relating to charges on income (which owes its origins to the historic concept of alienation of income) is replaced with a deduction in calculating net income. See Change 81 in Annex 1.
1268.This Chapter distinguishes between individuals and other persons. One reason for this is that section 347A of ICTA provides that, with certain exceptions, an annual payment made by an individual (or personal representatives) is not to be a charge on the income of the person liable to make it. And there is a similar rule concerning the recipient in section 727 of ITTOIA. But those rules do not apply to payments by other persons. See the commentary on sections 900, 901, and 903.
1269.In addition, the rules about when payments are regarded as being, or not being, made out of profits or gains brought into charge to income tax distinguish between the position of individuals and other persons in the light of the case law.
1270.This section provides an overview of the Chapter. It is new.
1271.This section provides for relief by deduction from income if an individual pays an annual payment for commercial purposes (see section 900) or pays a patent royalty (see section 903). It is based on section 348 of ICTA.
1272.The income tax in respect of the payment is collected as part of the individual’s self-assessment by way of Chapter 17 of Part 15. See Change 81 in Annex 1 and the overview commentary on this Chapter.
1273.The term “gross amount of the payment” is defined in section 452.
1274.In the source legislation a number of types of income are treated as not brought into charge to income tax and so are not available to cover charges on income. To preserve the effect of the source legislation, it is necessary to prevent the deduction being given against such “non-qualifying income”. Subsection (3) introduces these by referring to subsection (4) and to section 451.
1275.Subsection (4) gives a signpost to section 1025 which, together with section 1026, provides that such income cannot form part of “modified net income”. So it cannot give occasion for relief. See the commentary on section 1025.
1276.This section provides for relief by deduction from income in the case of persons other than individuals. It is based on section 348 of ICTA.
1277.Subsection (1)(c) works together with the repeal of section 51 of ITTOIA to align the approach to patent royalties with that for annual payments. See Change 81 in Annex 1.
1278.Subsection (5) mirrors the rule about “modified net income” in the previous section.
1279.This section rewrites the rule in the source legislation about when payments are regarded as being, or not being, made out of profits or gains brought into charge to income tax. It is new.
1280.In the case of an individual one need go no further than ask whether the individual has income, as noted in Change 82 in Annex 1. But the position is more complex in the case of persons other than individuals.
1281.Subsection (2) provides that if a payment can lawfully only be made out of capital, or out of exempt income, relief will not be given: see Change 82 in Annex 1 in connection with Sugden v Leeds Corporation (1913), 6 TC 211 HL.
1282.Subsection (3) provides that, if a person other than an individual makes a payment within this Chapter that is charged to capital, it is to that extent denied relief. This principle appears in Chancery Lane Safe Deposit and Offices Co Ltd v CIR (1965), 43 TC 83 HL and related cases: see Change 82 in Annex 1.
1283.Subsection (4) provides for cases where the taxpayer has treated a payment as having been made out of exempt income, and this has had an effect on the actual or contingent rights or obligations of any person. Relief in such cases is denied on the authority of CIR v Ayr Town Council (1938), 22 TC 381 CS: see Change 82 in Annex 1 concerning that and related cases.
1284.Subsection (5) deals with subsidy cases, where payment is made but the payer is reimbursed for the gross amount in a form that is not taxable in the payer’s hands. To permit such cases would in effect give double relief: see Change 82 in Annex 1 as regards Corporation of Birmingham v CIR (1930), 15 TC 172 HL and related cases.
Income Tax Act 2007