Policy paper

Restriction of charitable reliefs to UK Charities

Published 15 March 2023

Who is likely to be affected

A small number of non-UK Charities and Community Amateur Sports Clubs (CASC) based in the European Union (EU) or European Economic Area (EEA), and their UK donors, may be affected by this change.

General description of the measure

This measure will change the tax definition of a charity or CASC. Currently charities or CASCs located in the UK, EU or the EEA could qualify for charitable tax reliefs in the UK.

The measure will change this for charities so that only those that come 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 .

For CASCs, it will change the location condition so that the CASC must be based in the UK and provide facilities for eligible sports in the UK.

This measure takes effect from 15 March 2023 for any charity or CASC that has not asserted their status for charitable tax reliefs. For non-UK charities and CASCs that have asserted their status for charitable tax reliefs on 15 March 2023 there will be a transitional period until April 2024. From April 2024, all non-UK charities and CASCs will no longer be eligible to claim UK charitable tax reliefs.

Policy objective

This measure will ensure that UK taxpayer money only supports UK charities and CASCs, and support compliance activities for HMRC.

Background to the measure

This measure was announced at Spring Budget 2023.

Detailed proposal

Operative date

From 15 March 2023, any new applications by charities or CASCs to be recognised by, or registered with, HMRC will need to comply with the new tax definition.

From April 2024, non-UK charities or CASCs that had asserted their status for charity tax reliefs prior to 15 March 2023 will cease to be qualifying charities or CASCs for the purposes of UK charitable tax reliefs.

Current law

Current law containing the jurisdiction condition for the definition of charities for tax purposes can be found at Paragraph 2, Schedule 6 to Finance Act 2010.

For CASCs, current law containing the jurisdiction condition for the definition for tax purposes can be found at section 661A of Corporation Tax Act 2010.

Proposed revisions

Legislation will be introduced in Spring Finance Bill 2023 that will amend the Jurisdiction Condition in Paragraph 2, Schedule 6 to the Finance Act 2010 and the location condition in section 661A of Corporation Tax Act 2010 for charities and CASCs respectively.

The changes will be as follows:

The Jurisdiction condition within Paragraph 2, Schedule 6 to Finance Act 2010 will be amended to remove references to a charity being able to be located in a territory outside the UK for the purposes of qualifying for charitable tax reliefs. The effect of these will be that only a charity subject to the control of a relevant UK court will qualify as a UK charity for tax purposes.

For a CASC the change is to section 661A of Corporation Tax Act 2010 and has the effect that a CASC must be based in the UK and provide facilities for eligible sports in the UK to continue being registered as a CASC.

These changes will affect the legislative framework relating to the tax definition and eligibility for UK charitable tax reliefs.

This measure will take effect from 15 March 2023 for any charity that has not already asserted its status as a charity by that date.

For those entities that qualify under Paragraph 2, Schedule 6 to FA 2010 and have already asserted their status before 15 March 2023 there will be a transition period its affect will be as follows:

• For Corporation Tax, Value Added Tax, Inheritance Tax, Stamp Duty, Stamp Duty Reserve Tax, Stamp Duty Land (SDLT) Tax, Annual Tax on Enveloped Dwellings and Diverted Profits Tax the transition period extends access to reliefs from 15 March 2023 until 1 April 2024
• For Income Tax and Capital Gains Tax the transition period extends access to reliefs from 15 March 2023 until tax year 2024/25

For CASCs that have not already asserted their status prior to 15 March 2023 it will apply to accounting periods beginning on or after 15 March 2023. Where they met the definition of a CASC in section 661A of Corporation Tax Act 2010 and have asserted their status as a CASC the amendments apply to periods beginning on or after 1 April 2024.

Charities will be treated as having asserted their status as a charity, where immediately before 15 March 2023 the charity fell within the definition of charity in Paragraph 2, Schedule 6 to the Finance Act 2010 and at any time before that date it has made a valid claim (under any enactment) to HMRC which relied on its status as a charity.

A CASC will be treated as having already asserted its status as a CASC where immediately before 15 March 2023 it is either registered as a CASC under section 658 of Corporation Tax Act 2010, or is not registered but is entitled to be and has made an application for registration to HMRC.

For SDLT:

• Where a body of persons or trust has asserted its status as a charity, the amendments will have effect in respect of land transactions with an effective date on or after 1 April 2024, except -
  • land transactions which are effected in pursuance of a contract entered into and substantially performed before 1 April 2024, or
  • land transactions which are effected in pursuance of a contract exchanged before 15 March 2023 and which are not excluded transactions.
• Where a body of persons or trust has not asserted its status as a charity the amendments will have effect in respect of land transactions with an effective date on or after 15 March 2023 except -
  • land transactions which are effected in pursuance of a contract entered into and substantially performed before 15 March 2023,
  • land transactions which are effected in pursuance of a contract exchanged before 15 March 2023 and which are not excluded transactions.
• A transaction will be excluded where:
  • There is a variation or assignment of rights under the contract after 15 March 2023, or
  • The transaction is effected by consequence of an exercise of any options, pre-emption or similar right after 15 March 2023, or
  • On or after the 15 March 2023 there is an assignment, subsale or other transaction relating to whole or part of the subject-matter of the contract where the purchaser becomes entitled to call for a conveyance.

The amendments do not have effect in respect of interests held prior to 15 March 2023 in determining whether or not a person is:

• An ‘institutional investor’ for the purposes of UK Real Estate Investment Trust rules;
• An ‘eligible investor’ for the purposes of the Exempt Unauthorised Unit Trust rules; or
• A ‘relevant qualifying investor’ for the purposes of the Qualifying Asset Holding Companies regime.

Summary of impacts

Exchequer impact (£m)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
—	nil	+5	+10	+10	+10

These figures are set out in Table 4.1 of Spring Budget 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will impact on an estimated 2,000 individuals who claim higher rate relief on donations to non-UK charities. They will no longer be able to claim higher rate relief on donations to non-UK charities. Individuals will not need to do anything as a result of this change other than be aware that future donations will not qualify for higher rate relief on donations made to non-UK charities. The charity should be able to advise them of eligibility, but they should also check prior to claiming tax relief.

This measure is not expected to impact on family formation, stability or breakdown.

This measure is expected overall to have no impact on individuals experience of dealing with HMRC as the measure doesn’t change any process for applying for relief.

Equalities impacts

Around 2,000 higher rate taxpayers will not be eligible for tax reliefs on donations to non-UK charities. More men, than women will be affected by this measure due to a higher proportion of higher rate taxpayers being men.

It is not anticipated that there will be impacts on other groups sharing protected characteristics.

Impact on business including civil society organisations

This measure will have a negligible impact on an estimated 5,000 businesses by requiring them to check that any charities they donate to are qualifying charities and ensure any relief claimed is valid. This is an activity that should already be undertaken by donors for all charitable donations. One-off costs could include upskilling staff to understand the rules and familiarisation with the changes. Continuing costs could include time taken for employees to ensure that charities are recognised by HMRC. This measure is expected overall to have no impact on business’ experience of dealing with HMRC as the measure doesn’t change any process for applying for relief.

This measure is expected to have a negligible impact on civil society organisations. There are approximately 20 EU/EEA charities which have asserted their status for charitable tax relief with HMRC outside the jurisdiction of the High Court in England, Wales and Northern Ireland or the Court of Session in Scotland. To continue to benefit from charitable status, the measure will require charities located outside the UK to come within the jurisdiction of the UK courts. One-off costs for charities would include familiarisation with these new rules and setting up a UK presence. Ongoing costs will be the need to prepare and maintain records in line with HMRC requirements and any costs associated with dealing with HMRC enquiries. These may be mitigated as the information will already need to be prepared for the tax authority in their home country which they currently also are required to prepare in a format that HMRC accept. It is expected that most charities will make use of an agent to assist with this and HMRC provides detailed guidance on how to do this.

Of the 20 EU/EEA charities, about 10 of these charities claim Gift Aid, totalling less than £0.5m a year.

Operational impact (£m) (HMRC or other)

HMRC will incur negligible costs to deliver IT changes to support implementation of this measure.

Monitoring and evaluation

The measure will be monitored through administrative and operational data.

Further advice

If you have any questions about this change, please contact Sean Perkins, Savings and Charities Policy at email [email protected]