Chapter 3: Gifts of shares, securities and real property to charities etc
Overview
1224.This Chapter gives relief to individuals making gifts of shares, securities and real property to charities, or disposing of such assets to charities at an undervalue. It is based on sections 587B and 587C of ICTA 1988.
Section 431: Relief for gifts of shares, securities and real property to charities etc
1225.This section sets out the relief. It is based on section 587B(1) and (2) of ICTA.
1226.Subsection (1) provides that relief is available if an individual disposes of the whole of the beneficial interest in a qualifying investment to a charity and makes a claim. The rule in section 587B(2) of ICTA that the claim must “be made to an officer of the Inland Revenue” is catered for by paragraph 2(1) of Schedule 1A to TMA.
1227.Subsection (2) provides that relief for the “relievable amount” is given as a deduction in calculating net income.
1228.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 432: Meaning of “qualifying investment”
1229.This section lists the types of investment that can attract relief. It is based on section 587B(9) of ICTA.
Section 433: Meaning of “qualifying interest in land”
1230.This section defines “qualifying interest in land”. It is based on section 587B(9A) to (9E) of ICTA.
1231.Subsections (2) and (3) clarify the position where an individual with a beneficial interest in an estate in land gives that beneficial interest to a charity along with any easement, servitude or right that benefits the land. For example, A’s land may only be accessible by way of an easement over B’s land. If A gives the charity both the land and the right over B’s land, the disposal of the right is treated as a separate disposal.
1232.If an individual with a freehold or leasehold interest carves out of that interest a lease for the benefit of the charity, the retention of a freehold or leasehold reversion will not prevent the disposal from being “of the whole of the beneficial interest”. But an agreement to acquire a freehold, or an agreement for a lease, is not enough to constitute a disposal.
Section 434: The relievable amount
1233.This section sets out how to calculate the relievable amount, firstly in cases where the qualifying investment is transferred to the charity by way of gift (subsection (1)), and then where there is consideration for the transfer (subsection (2)). It is based on section 587B(4) to (7) of ICTA.
1234.In each case, the computation starts with the value of the net benefit to the charity (V), either directly (as in subsection (1)) or in arriving at E (the excess of V over the consideration for the disposal) in subsection (2).
1235.The detail of how V is calculated is in sections 437 to 440. But it is emphasised in the definition of V in subsection (1) that V must be considered both at, and immediately after, the time of the disposal.
1236.Subsection (3) makes it explicit that if the amount given by either formula is negative the relievable amount is nil.
1237.The treatment of incidental costs of disposal depends on whether the transfer is by way of gift or at an undervalue. If it is a gift, all the incidental costs are added in arriving at the relievable amount. But if there is consideration for the disposal, there is an interplay between the capital gains tax treatment and the incidental costs.
1238.Under section 257(2)(a) of TCGA a gift of a qualifying investment to a charity is treated as being for such a consideration as will result in neither a loss nor a gain to the donor. Incidental costs are added only if that deemed consideration is greater than the actual consideration. But the amount added must not be greater than that excess. C is defined (in subsection (4)) to achieve this result.
Section 435: Incidental costs of making disposal
1239.This section defines “the incidental costs of making the disposal to the individual making it”. It is based on section 587B(9) of ICTA.
1240.The section reproduces the material in section 38(2) of TCGA to which section 587B(9) cross-refers, with the exception of the reference to stamp duty and stamp duty land tax, which do not apply to transactions within this Chapter.
Section 436: Consideration
1241.This section defines “consideration”. It is based on section 587B(7)(b) of ICTA.
1242.The section reproduces the relevant material in section 48 of TCGA (consideration due after time of disposal), to which section 587B(7)(b) cross-refers. The main thrust of section 48 of TCGA is that full value is to be introduced into the computation of the gain. Only on a subsequent claim is the consideration to be reduced, either because the right to receive any amount is contingent or because any part of the consideration proves to be irrecoverable.
Section 437: Value of net benefit to charity
1243.This section is the first of four sections concerned with defining the value of the net benefit to the charity. It is based on section 587B(8A) and (8B) of ICTA.
1244.In the simple case, where there are no disposal-related obligations, the value of the net benefit to the charity is the market value of the qualifying investment. As indicated in section 434, this has to be considered both at, and immediately after, the disposal.
1245.If the charity is, or becomes, subject to an obligation that is connected with the disposal of the qualifying investment to the charity, the market value of the investment is reduced by the amount of the disposal-related liabilities (see section 440) brought about by the obligation. These obligations also must be considered both at, and immediately after, the disposal.
Section 438: Market value of qualifying investments
1246.This section sets out how the market value of qualifying investments is to be determined. It is based on section 587B(10) and (11) of ICTA.
1247.The methods are those laid down in sections 272 to 274 of TCGA. If an offshore fund publishes buy and sell prices, it is in effect subject to the same treatment as a unit trust scheme as laid down by section 272(5) of TCGA. The provisions of that subsection are reproduced here.
Section 439: Meaning of “disposal-related obligation”
1248.This section defines “disposal-related obligation”. It is based on section 587B(8B) to (8D) and (9) of ICTA.
1249.The obligation undertaken by the charity may be any scheme, arrangement or understanding of any kind, regardless of whether it is legally enforceable. The word “obligation” also includes a reference to a series of obligations, whether or not between the same persons. It may also be contingent (see section 440(2)).
Section 440: Meaning and amount of “disposal-related liability”
1250.This section defines “disposal-related liability”. It is based on section 587B(8E) to (8G) of ICTA.
1251.Subsection (2) deals with contingent disposal-related obligations.
1252.It is in the nature of a contingency that it may occur after the time of disposal; hence the words “at any time”. If a contingency occurs later than immediately after the disposal, but existed as a possibility at the time of disposal, the value of the net benefit to the charity at the time of, or immediately after, the disposal must be reduced; and all necessary adjustments must be made to give effect to this. Conversely, if the contingency does not occur, to that extent there will be no obligation and no liability.
Section 441: Certificate required from charity
1253.This section, which is the first of four that deal specifically with qualifying interests in land, requires any claim for relief in relation to a qualifying interest in land to be supported by a certificate from the charity. It is based on section 587C(1), (4) and (5) of ICTA.
Section 442: Qualifying interests in land held jointly
1254.This section deals with land held by joint tenants or by tenants in common. It is based on section 587C(1) to (3) of ICTA.
1255.Relief is given only if each joint tenant, or tenant in common, disposes of the whole of that person’s beneficial interest in the land. This applies whether the relief is claimed by an individual under this Chapter, or by a company under sections 587B and 587C of ICTA.
1256.It is provided that there must be an agreement between all the tenants eligible for relief (whether individuals or not, and whether joint or in common) as to the share of the relief attributable to each tenant. To the extent that there is no such agreement between the owners entitled to relief, there is no relief under this Chapter, or under sections 587B and 587C of ICTA.
1257.The relief is available to individuals under this Chapter and to companies under sections 587B and 587C of ICTA, but not to other persons. So it is necessary in the case of joint disposals to set out a method to determine whether all beneficial interests have been disposed of. To that end, and to ensure that the total relief given under this Chapter and the corresponding provisions of ICTA is not excessive, it is provided that, for this purpose only, the rules defining “qualifying interest in land” in section 433(2) to (4) are to apply to all owners as if they were individuals. See also Change 80 in Annex 1 and the commentary on section 443.
Section 443: Calculation of relievable amount where joint disposal of interest in land
1258.This section provides details of the method of calculation of the “relievable amount” in cases where there is a joint disposal of an interest in land. It is new.
1259.The method involves calculating the relievable amount as if there is a disposal by a single person, and then adjusting the amount to take account of only those owners who qualify for relief. See Change 80 in Annex 1.
Section 444: Disqualifying events
1260.This section provides for the recovery of relief if a “disqualifying event” occurs within the “provisional period”. It is based on section 587C(1) and (6) to (10) of ICTA.
1261.In the simplest case, such an event occurs if any of the persons who made the disposal are entitled to buy the land back from the charity at an undervalue.
Section 445: Prohibition against double relief
1262.This section establishes the priority of this Chapter over any other provisions under which relief might be claimed. It is based on section 587B(2)(b) of ICTA.
1263.Subsection (2) is a signpost to the effect on the chargeable gains position of the charity of the rules in section 587B(3) of ICTA. See section 257 of TCGA as amended by Schedule 1 to this Act.
Section 446: “Charity” to include exempt bodies
1264.This section extends the relief given by the Chapter to certain bodies set up by Act of Parliament even though they are not charities. It is based on section 587B(9) of ICTA.
1265.The references to the British Museum and the Natural History Museum (originally in section 507(1) of ICTA, to which section 587B(9) of that Act cross-refers) are no longer required, since those bodies are established for charitable purposes. Their omission does not affect the exemption from corporation tax given by section 507 of ICTA. See Change 79 in Annex 1 and the commentary on section 430.
