Office of Public Sector Information
PART 10 continued
(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.
(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
(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 that is to be attributed to the non-exempt amount.
(1) For the purposes of this Part a charitable trust’s non-charitable expenditure for a tax year is—
(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 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—
(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 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 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 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 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,
(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 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 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,
(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).
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).
(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),
section 558 (approved charitable investments), and
section 561 (approved charitable loans).
(1) This section applies for the purposes of section 543.
(2) For rules about the calculation of losses, see—
(a) section 26 of ITTOIA 2005 (losses of a trade calculated on same basis as profits),
(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).
(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
(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.
(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
(c) the repayment by the charitable trust of the whole or a part of a loan made to it.
(1) This section applies for the purposes of section 543(1)(f).
(2) Subsection (3) applies to expenditure which is referable to commitments (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 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.
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 reasonable in the circumstances to ensure that the payment will be applied for charitable purposes.
(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 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).
(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 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,
(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 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 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.
(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 until after the transaction was entered into that the person first met the definition of “substantial donor” for the tax year.
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),
(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),
(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).
(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 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 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.
(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 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, be the cash equivalent of the remuneration as a benefit.
(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.
(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 charitable trust, in the course of, or for the purposes of, the transaction, that is treated as non-charitable expenditure under section 551(1).
(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—
(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 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 qualifying donation for the purposes of section 339 of ICTA because of subsection (3B)(b) of that section (restrictions on associated benefits).
(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 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
(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, 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 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.
(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 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 549(2).
(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).
(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),
(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)—
(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.
(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.
(2) For this purpose “connected” means connected in a matter relating to the structure, administration or control of a charity.
(1) In sections 549 to 555—
(a) a reference to a substantial donor or other person includes a reference 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
(c) a reference to a gift of a specified amount includes a reference to a non-monetary gift of that value.
(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).
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.
Type 1
An investment to which section 559 applies.
Type 2
An investment in a common investment fund established under—
section 22 of the Charities Act 1960 (c. 58),
section 24 of the Charities Act 1993 (c. 10), or
section 25 of the Charities Act (Northern Ireland) 1964.
Type 3
An investment in a common deposit fund established under—
section 22A of the Charities Act 1960, or
section 25 of the Charities Act 1993.
Type 4
An investment in a fund which—
is similar to a fund mentioned in relation to Type 2 or 3, and
is established for the exclusive benefit of charities by or under a 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
Any of the following issued by Her Majesty’s Government in the United Kingdom—
bills,
Certificates of Tax Deposit,
Savings Certificates, and
Tax Reserve Certificates.
Type 7
Northern Ireland Treasury Bills.
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
A deposit with a bank (as defined in section 991)—
in respect of which interest is payable at a commercial rate, and
which is not made as part of an arrangement under which a loan is made by the bank to some other person.
Type 10
A deposit with—
the National Savings Bank,
a building society, or
a credit institution which operates on mutual principles and which is authorised by an appropriate governmental body in the territory in which the deposit is taken.
Type 11
Certificates of deposit (including uncertificated eligible debt security units as defined in section 986(3)).
Type 12
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).
(1) The investments to which this section applies are investments in securities—
(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 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 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.
(2) Subsection (1) is subject to section 560.
(3) In this section and in section 560—
“debentures” includes—
debenture stock and bonds (whether constituting a charge on assets or not), and
loan stock or notes,
“open-ended investment company” is to be read in accordance with section 468A(2) to (4) of ICTA,
“securities” includes shares and debentures, and
“shares” includes stocks.
(1) Section 559 does not apply to an investment by virtue of subsection (1)(b), (c) or (d) of that section unless—
(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 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
(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.
(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 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 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 £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 for dividend for that year).
(7) For the purposes of the words in brackets in subsection (6)(a) use the exchange rate prevailing in the United Kingdom at the close of business on the last business day before the investment day.
(8) For the purposes of subsection (6)(b) a company formed—
(a) to take over the business of another company or other companies, or
(b) to acquire the securities of, or control of, another company or other companies,
is treated as having paid a dividend in any year in which a dividend has been paid by the other company or all of the other companies (as the case may be).
(9) It is irrelevant that the company is formed for other purposes in addition to those mentioned in paragraph (a) or (b) of subsection (8).
(10) In this section—
“business day” means, in relation to an investment, a business day in the place where the investment is made, and
“the investment day” means, in relation to an investment, the day on which the investment is made.
(1) A loan is an approved charitable loan for the purposes of section 543 (meaning of “non-charitable expenditure”) if it meets conditions A and B.
(2) Condition A is that the loan is not made by way of investment.
(3) Condition B is that either—
(a) the loan is made to another charity for charitable purposes only,
(b) it is made to a beneficiary of the charitable trust in the course of carrying out the purposes of the charitable trust,
(c) it consists of money placed on current account with a bank otherwise than as part of an arrangement under which a loan is made by a bank to some other person, or
(d) an officer of Revenue and Customs is satisfied, on a claim, that the loan is made for the benefit of the charitable trust and not for the avoidance of tax (whether by the charitable trust or by some other person).
(4) In this section “bank” has the meaning given by section 991.
Income Tax Act 2007