Changes To Charitable Tax Reliefs – An Estate Planning Perspective
Background
During the Spring Budget 2023, the government announced a change to the way that charities are defined for tax purposes in the UK.
Previously, non-UK charities and Community Amateur Sports Clubs (CASCs) based in the UK, EU and EEA were able to qualify for certain tax reliefs on charitable giving. Following the recent change, these non-UK bodies will no longer be able to qualify for charitable tax reliefs in the UK. Only charities that come under the jurisdiction of the High Court in England and Wales or Northern Ireland, or the Scottish Court of Session will qualify, and only UK-based CASCs that provide facilities for eligible sports can benefit.
Some non-UK charities and CASCs had already asserted their status for charitable tax reliefs before March 2023. For those who had done so, the new change will not affect them until April 2024. For those who were not already registered with HMRC, the change came into effect on 15 March 2023.
The government explained that the intention behind the change is to ensure that UK taxpayer money only supports UK charities.
Effect on Estate Planning
Estate planning often involves advising clients about the ways that charitable giving can be tax efficient. There are several ways that giving money to charity can be beneficial in terms of inheritance tax, capital gains tax and income tax.
For example, there is no inheritance tax charge on gifts to charity, whether they are made during an individual’s lifetime, or on their death by their Will. In addition, if an individual leaves 10% or more of their “net” estate to a qualifying charity or charities the rate of inheritance tax reduces from 40% to 36%. It is therefore important to check that where a person has a Will in place that leaves a donation to charity, that charity still qualifies for the inheritance tax relief under the new definition.
Charities can benefit from Gift Aid which enables them to reclaim the income tax that an individual paid on donations, increasing the overall amount that the charity receives. This can also affect higher earners, for whom making Gift Aid donations can extend the amount of their income that is taxed at lower tax bands, and their tax-free personal allowance. Under the new rules, non-UK charities will not be able to benefit from Gift Aid.
Furthermore, when selling or transferring assets to a charitable body, the transaction can result in no liability to capital gains tax on any gain in the asset’s value, unlike when passing assets to another individual or corporation. Capital gains tax reliefs will now only be available when assets are sold or transferred to charities that are registered in the UK for tax purposes.
It is extremely likely that many people who have planned their tax affairs around the charitable reliefs available may have chosen to benefit non-UK charities. If this is the case, the intended tax benefits of such gifts may no longer be available.
We would advise anyone who is concerned about whether this change will affect them to get in touch with our Lifetime and Estate Planning team, who will be happy to review their position and advise on whether any changes or further planning is required to continue to benefit from the attractive tax reliefs available on charitable giving.
