Income Tax Act 2007

Substantial donor transactions

549 Transactions with substantial donors

(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.

550 Meaning of “relievable gift”

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).

551 Non-charitable expenditure in substantial donor transactions

(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.

552 Adjustment if section 551(1) and (2) applied to single transaction

(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).

553 Section 551: certain payments and benefits to be ignored

(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).

554 Transactions: exceptions

(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).

555 Donors: exceptions

(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.

556 Connected charities

(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.

557 Substantial donor transactions: supplementary

(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).