Chapter 2: Gift aid
Overview
1164.This Chapter gives relief for some gifts of money by individuals to charities. It is based on section 25 of FA 1990, section 98 of FA 2002 and section 83 of FA 2004.
Section 413: Overview of Chapter
1165.This section provides an overview of the Chapter. It is new.
1166.Subsection (2) points to section 414, which sets out how the relief works.
1167.Under section 414(2)(a), the gift is treated as paid after deduction of income tax. If the tax treated as deducted from the gift is greater than the income tax and capital gains tax to which the individual is liable, the excess is recovered. Under these rules, signposted by subsection (3):
the donor may suffer the restriction of certain other reliefs (including personal allowances); and
if the tax treated as deducted from gifts exceeds the income tax and capital gains tax to which the donor is liable, additional income tax will be charged.
1168.The position of the charity receiving the gift is not addressed in this Chapter. The rules about charitable trusts are in Part 10 of this Act. The rules about charitable companies remain in the source legislation, as indicated by subsection (5).
Section 414: Relief for gifts to charity
1169.This section sets out the relief. It is based on section 25(6) of FA 1990.
1170.Subsection (1) sets out the basic requirement for the relief, which is that the gift should be a “qualifying donation” (see section 416).
1171.Subsection (2)(b) provides that the individual’s basic rate limit is increased by the amount of the gift grossed up at the basic rate of income tax. As a result, an amount of income up to that amount is taxed at either the dividend ordinary rate, the savings rate or the basic rate, rather than at the higher rate or the dividend upper rate.
1172.If “top slicing relief” is claimed on gains under life assurance policies etc (sections 535 to 537 of ITTOIA), relief under this Chapter is ignored for the purposes of the computations required by section 535(1) of ITTOIA. See section 535(7) of ITTOIA, inserted by Schedule 1 to this Act.
Section 415: Meaning of “grossed up amount”
1173.This section provides the meaning of references to “the grossed up amount” of a gift. It is based on section 25(12)(d) of FA 1990.
Section 416: Meaning of “qualifying donation”
1174.This section sets out the meaning of “qualifying donation”. It is based on section 25(1) and (2) of FA 1990.
1175.Condition C excludes the possibility of a double claim for relief under these provisions and also under the payroll deduction scheme.
1176.Condition D enacts the principle that, to be a qualifying donation, the payment must not also be deductible in arriving at the individual donor’s income from any source. See Change 76 in Annex 1.
1177.Condition E denies relief if the donor, or any person associated with the donor, disposes of any property to the charity for any consideration. This prevents any overlap between this relief and the relief for gifts of assets in Chapter 3 of this Part.
Section 417: Meaning of “benefits associated with a gift”
1178.This section defines what is meant by one or more benefits being “associated with” a gift. It is based on section 25(2) and (4) of FA 1990.
Section 418: Restrictions on associated benefits
1179.This section sets out two conditions which, if either is met, mean that the restrictions on benefits associated with a gift are breached (condition F of section 416). It is based on section 25(2), (4), (5) and (5A) of FA 1990.
1180.The two conditions are:
a stepped scale, depending on the amount of each gift (Condition A) – the “benefit per gift” test; and
an overall monetary limit on benefits associated with the total of any gifts to a single charity in the course of a tax year – the “benefit per year” test (Condition B). This is unrelated to the size of any particular gift.
1181.Both these restrictions apply to any benefit “associated with” a gift. Sections 420 and 421 remove certain benefits consisting of admission rights from the application of both restrictions.
Section 419: Gifts and benefits linked to periods of less than 12 months
1182.This section modifies the application of section 418(2) where gifts or benefits are linked to periods of less than 12 months. It is based on section 25(5B) to (5D) of FA 1990.
1183.The section provides, according to the case, for annualising:
the actual amount of the gift; or
both the amount of the gift and the value of the benefit(s) associated with the gift.
1184.Only the annualised amount in each case is to be compared with the cash limits given in section 418(2). This prevents periods of less than 12 months being used to exploit the cash limits.
1185.Subsection (8) states the formula for annualising in each case. In the source legislation some of the conditions in the section could overlap, so that more than one condition could apply to the gift(s) and associated benefit(s) concerned. A priority rule is, therefore, provided. See Change 77 in Annex 1.
Section 420: Disregard of certain admission rights
1186.This section ensures that a benefit consisting of a relevant admission right is ignored for the purposes of the Chapter, so that a donation to a charity with which such a benefit is associated may be a qualifying donation regardless of the value of the benefit. It is based on section 25(5E) to (5I) of FA 1990.
1187.Condition B contains no general qualification relating to the purposes of the recipient charity. But property, as defined in subsection (6), must be preserved, maintained, kept or created by the charity for those charitable purposes.
1188.In Condition C (further provisions about which are in section 421(2) to (4)), the right of admission must apply for at least 12 months whenever admission is available to members of the public who have not made such a gift.
1189.But in Condition D there is no time period. For the meaning of the “same right of admission” see section 421(5).
Section 421: Admission rights: supplementary
1190.This section provides supplementary material about Conditions C and D in section 420. It is based on section 25(5I) and (5J) of FA 1990.
1191.Subsections (2) to (4) deal with cases when event days could be held to interrupt the availability of a right of admission, reducing it to a period of less than 12 months and thus breaching Condition C. The applicable period is not regarded as broken if there are no more than five event days in it.
Section 422: Disqualified overseas gifts
1192.This section provides the rules for Condition G in section 416(8). It is based on section 25(2) of FA 1990.
1193.In addition to the other conditions for a qualifying donation in sections 416 to 421, this section imposes a specific test that must be met in the case of a gift (an “overseas gift”) made by a donor who is neither UK resident nor in Crown employment.
1194.The source legislation provides that, for the gift to be a qualifying donation, its grossed up amount would, if paid, be “payable out of profits or gains brought into charge to income tax or capital gains tax”. This is rewritten as a reference to the gift being disqualified if it results in the sum of the grossed up amounts of any overseas gifts being more than the individual’s charged amount (see section 427) for the tax year. This is in keeping with the approach adopted towards the parallel rule in the source legislation for charges on income in its application to individuals (see Change 81 in Annex 1 and the commentary on section 425).
Section 423: Restriction of certain reliefs
1195.This section restricts certain reliefs, where necessary to ensure that the individual pays enough tax to match any tax which might be refunded to the charities receiving the gifts. It is based on section 25(6)(c) of FA 1990.
1196.The section operates if the amount of income tax treated as deducted from an individual’s gifts, “amount A” insubsection (2), is greater than “amount B”.
1197.The source legislation does not expressly say how “amount B” is to be calculated. This section makes clear that the only difference between “amount B” (from section 25(6)(c) of FA 1990) and “amount C” in section 424 (from section 25(9) of that Act) is that “amount B” is calculated before any restriction of personal reliefs under this section. See Change 78 in Annex 1 and the commentary on section 425.
1198.So “amount B” is:
the income tax liability as defined in section 425 but before applying any reduction in reliefs under this section; plus
the capital gains tax liability.
1199.Section 25(6)(b) and (7) of FA 1990 are not rewritten. These provisions relate to certain of the tax reductions listed in section 27(5) of this Act. The effect of the relevant provisions in section 25(6)(b) and (7) of FA 1990 is achieved by the operation of sections 23 and 425(2) of this Act.
1200.The reliefs listed in subsection (5) are to be reduced only to the extent necessary. If all such available reliefs are extinguished and the liability still falls short of amount A, a charge to income tax arises under section 424.
Section 424: Charge to tax
1201.This section operates to charge the donor with income tax in the amount of any remaining shortfall after the operation of section 423. It is based on section 25(8) of FA 1990.
1202.Instead of “amount B” as in section 423, the comparison is now with “amount C”, which is the tax liability after applying section 423. That liability includes the income tax liability as adjusted in accordance with section 425.
1203.The charging provision operates directly in terms of an amount of tax, rather than (as in the source legislation) by way of charging an amount of deemed income.
Section 425: Total amount of income tax to which individual charged for a tax year
1204.This section provides for the adjustments to the individual donor’s income tax liability in order to arrive at “amount B” in section 423 and “amount C” in section 424. It is based on section 25(9) of FA 1990.
1205.As part of the clarification of how these amounts are calculated, section 25(9)(c) of FA 1990 has been dropped as anomalous. See Change 78 in Annex 1 and the commentary on section 423.
1206.Section 25(9)(a) of FA 1990 is not rewritten. That provision dealt with tax charged at the basic rate by virtue of sections 348 or 349 of ICTA. As a result of the new approach to charges on income such tax is no longer dealt with as part of a person’s liability. See Change 81 in Annex 1.
Section 426: Election by donor: gift treated as made in previous tax year
1207.This section provides that an individual may elect that a qualifying donation made in one tax year be treated as having been made in the preceding tax year (“year P”). It is based on section 98 of FA 2002.
1208.A test similar to that in section 422 must be met in year P for an election to be valid. Because of the possibility that other qualifying donations will have been made in year P, and will not themselves have been carried back to “year P minus 1”, the language in which the test is expressed differs slightly from that in section 422. Hence the references to the “increased total of gifts”.
1209.Subsection (4), concerning the increased total of gifts, also has to take into account the possibility that elections are made when a notice under section 8 of TMA has not been issued and there is no other legal duty to notify liability to tax or file a self-assessment return. In that case, instead of being included in the self-assessment return under section 42(2) of TMA, elections may be made otherwise (under Schedule 1A to TMA), which opens up the possibility of a number of elections being made in respect of separate donations in the same year.
1210.In the case of non-residents to whom section 422 applies, if a donation does not meet the test set out in section 422(3) in the tax year in which the gift is made, it cannot be carried back in this way. In such a case the donation would not be “qualifying” and so would fail the condition in subsection (1)(a) of this section.
1211.An election must be made before the actual filing date of the self-assessment tax return for year P (if a self-assessment return is made for that year), and in any case before the normal self-assessment filing date for year P. The requirement in section 98(2) of FA 2002 that the election “be made by notice in writing to an officer of the Inland Revenue” is catered for by paragraph 2(1) of Schedule 1A to TMA.
1212.In all cases the charity is treated as receiving the donation, not in year P, but in the tax year of payment. It is in respect of the year of payment that the charity will, if appropriate, be entitled to an income tax repayment in respect of the donation.
Section 427: Meaning of “charged amount”
1213.This section provides the basic calculation rules to establish the individual’s charged amount for the purposes of the tests in sections 422 and 426. It is based on section 25(2) of FA 1990 and section 98(3) of FA 2002.
1214.The detailed rules for establishing the individual’s modified net income are contained in section 1025 in Part 17, which defines this term (as used in subsection (2) of this section) for this and certain other purposes. See the commentary on that section.
1215.The basic rule is to add together the “modified net income” established under section 1025 and the amount on which the individual is chargeable to capital gains tax. This amount is then compared with the “overseas gifts total” in section 422(4), or the “increased total of the gifts” in section 426(4), as appropriate.
Section 428: Meaning of “gift aid declaration”
1216.This section provides the definition of “gift aid declaration” in section 416(1)(b), and states the powers under which the Commissioners for Her Majesty’s Revenue and Customs may make related regulations. It is based on section 25(3) and (3A) of FA 1990.
1217.The regulations currently in force for these provisions are:
the Donations to Charity by Individuals (Appropriate Declarations) Regulations 2000 (SI 2000/2074); and
the Donations to Charity by Individuals (Appropriate Declarations) (Amendment) Regulations 2005 (SI 2005/2790), which remove the requirement on charities to send to donors a written record of their oral declarations.
Section 429: Giving through self-assessment return
1218.This section makes provision for individuals to require all or part of any tax repayment arising as a result of a self-assessment return to be paid to a listed charity. It is based on section 83 of FA 2004.
1219.For the effect of this provision where the gift is received by a charitable trust, see section 538(3) and the commentary on that section.
Section 430: “Charity” to include exempt bodies
1220.This section provides that the bodies mentioned in subsection (1) are to be treated as charities for the purposes of this Chapter. It is based on section 507(1) of ICTA, section 25(12) of FA 1990 and paragraph 9 of Schedule 18 to FA 2002.
1221.References to the Trustees of the British Museum and of the Natural History Museum appear in section 507(1) of ICTA along with the other three bodies named in subsection (1)(a) to (c) of this section. Section 507 gives exemption to all the bodies named there from corporation tax in line with the exemptions afforded to charities under section 505 of ICTA.
1222.By contrast, the ability to receive gift aid donations is given to any charity if the purposes for which it is established are fully charitable. In the case of the British Museum and the Natural History Museum this is so: see the relevant sections of the British Museum Act 1963. But in the other cases it is more doubtful whether their functions as set out in their foundation Acts are solely charitable. So it is only the names of those bodies which are included in this section. See Change 79 in Annex 1.
1223.Similar provisions apply in the case of gifts of shares, securities and land to charities: see section 446 in Chapter 3 of this Part.
