Budget: Restriction of charitable reliefs to UK charities and CASCs
Removal of charitable tax reliefs for EU and EEA charities.
EU and EEA charities’ UK tax relief removed
The definitions of a charity and a Community Amateur Sports Club for tax purposes have been changed so that only UK charities are eligible for charitable tax reliefs. This change will take effect from 15 March 2023 and impacts non-UK (e.g. European Union (EU) and European Economic Area (EEA)) charities particularly. If an individual or corporate donor makes a donation to a non-UK charity after 15 March 2023, UK tax reliefs (such as Gift Aid) are only available if the charity has ‘asserted their UK charitable status’ previously with HMRC under transitional provisions which last until 5 April 2024 for individuals and 1 April 2024 for companies and charitable entities. After April 2024, taxpayers will not be eligible for UK tax relief on donations to EU or EEA charities and these entities themselves will be unable to claim Gift Aid. Overseas charities with UK activities will also lose the ability to claim charity tax reliefs.
The Chancellor’s announcements are principally designed to ensure that, following the UK’s exit from the European Union, it is solely UK charities who benefit from the UK’s generous charity tax exemptions.
Prior to this announcement, charities located in the UK, EU or EEA could qualify for tax reliefs in the UK. Following the UK’s withdrawal from the EU, this measure seeks to ensure that UK taxpayer money only supports UK charities.
Description of change
The effect of the measure is to change the definition of a charity so that only a charity that comes within the jurisdiction of the High Court in England, Wales or Northern Ireland, or the Court of Session in Scotland, will qualify for UK charitable tax reliefs.
With regards to Community Amateur Sports Clubs (CASCs), this measure will change the location condition so that the CASC must be based in the UK and provide facilities for eligible sports in the UK in order to qualify for UK charitable tax relief.
If the EU or EEA charities have asserted their status for charitable tax reliefs with HMRC on or before 15 March 2023, then the transitional period will mean that the changes will not take effect until April 2024. However, if the EU or EEA charities have not asserted their status with HMRC by 15 March 2023 then these changes will have immediate effect. Overall, from April 2024, all EU and EEA charities will not be eligible to claim UK tax reliefs.
Who will it impact?
This measure will impact EU and EEA:
- Charities and CASCs;
- Individuals making donations to these charities and claiming UK tax relief; and
- Companies who make donations to these charities and claim UK tax relief.
What will the impact be?
UK charitable tax relief will be withdrawn either immediately (i.e. from 15 March 2023) or, where the transitional period applies, from April 2024.
For individuals, these changes will mean the removal of Income Tax, Capital Gains Tax, and Inheritance Tax reliefs on donations to an EU or EEA charity. For companies these changes will mean the removal of Corporation Tax relief on company donations to an EU or EEA charity.
For the EU or EEA charitable entity itself, it will not be able to claim Gift Aid and it will lose its charitable status for tax purposes so that it may need to assess its liability to various UK taxes including, but not limited to, corporation tax, VAT and stamp duty. For example, these changes could mean that income that was previously exempt from UK tax is now taxable.
Individuals and Companies
Individuals and companies will need to assess their donations to EU and EEA charities to clarify whether their donations continue to qualify for UK charitable tax reliefs under the transitional period until April 2024, or whether the EU or EEA charity is no longer eligible. HMRC have stated that only 20 EU or EEA charities have ‘asserted their status’ for UK tax relief, so they are not expecting many to fall within the transitional provisions. UK taxpayers will need to obtain evidence of this ‘asserted status’ in order to claim the UK tax reliefs.
Care should be taken where individuals have Wills in place that leave a donation to a charity to determine whether it qualifies for Inheritance Tax relief under the new definition.
EU and EEA Charities and Exempt Organisations
Whilst the measures are unlikely to have a significant impact on most UK based charities, they will potentially require EU and EEA charities and Exempt Organisations with activities or investments in the UK to revisit their operating structure if in future they wish to continue accessing the various reliefs and exemptions. Although it may be possible to achieve a similar outcome going forward, this is likely to require further consideration from both a tax and charity law perspective.