EXPLANATORY NOTE

1. This Clause provides for a new tax relief for gifts of qualifying investments to a charity by an individual or a company. The donor will get an income tax or corporation tax deduction for the full market value of the qualifying investment at the date of the gift, plus incidental expenses of transfer, less any consideration or benefit received. The new relief will be in addition to the existing relief for gifts of shares, securities and other assets to a charity when calculating capital gains.

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2. Subsection (1) introduces a new section 83B into the Income and Corporation Taxes Act 1988.

3. Subsection (1) provides that subsections (2) and (3) shall apply where an individual or a company (which itself is not a charity) disposes of the whole of the beneficial interest in qualifying investments to a charity otherwise than by way of a bargain made at arm’s length.

 

4. Subsection (2) provides that the person making the disposal can claim tax relief for the relevant amount. In the case of:

• an individual, subsection (2)(a)(i) provides that the tax relief is to be given by deducting the relevant amount in calculating total income for the tax year in which the disposal is made

• a company, subsection (2)(a)(ii) provides that the tax relief is to be given by treating the relevant amount as a charge on income for the accounting period in which the disposal is made.

Subsection (2)(b) provides that where relief is claimed under new section 83B, no relief will be given under section 83A or any other provision of the Income Tax Act for the same disposal. Subsection (2) also provides that subsection (2)(a)(i) shall not apply for the purposes of any computation under section 550(2)(a) or (b) of the Income and Corporation Tax Acts 1988.

5. Subsection (3) provides for adjustment of the charity’s base cost for capital gains purposes. Where a charity acquires a qualifying investment in the circumstances outlined in subsection (1), its base cost shall be reduced by the relevant amount, or, if the base cost is less than the relevant amount, to nil.

6. Subsection (4) defines the "relevant amount" for the purposes of subsections (2) and (3). Subsection (4) provides that, subject to subsections (5) to (7), the relevant amount shall be:

1. in the case of a gift — the market value of the shares at the time when the disposal is made

2. in the case of a disposal at an undervalue — the difference between the market value at the time when the disposal is made and the amount or value of the consideration for the disposal.

7. Subsection (5) provides that the relevant amount shall be reduced by the amount of any benefits received by the person making the disposal, or a person connected with him, as a consequence of making the disposal. It also provides a definition of connected persons.

8. Subsection (6) provides that where the disposal is a gift, the relevant amount shall be increased by the incidental costs of making the disposal incurred by the person making it.

9. Subsection (7) provides that where the disposal is at an undervalue, the relevant amount shall be increased by the incidental costs of making the disposal incurred by the person making it, to the extent that the consideration for the disposal is less than that for which it is treated as made for capital gains purposes. This enables a person who does not get relief for his incidental costs of disposal in calculating his capital gains to get relief for them under section 83B.

10. Subsection (8) provides special rules for a company carrying on life assurance business. Subsection (8)(a) provides that if a company carrying on life assurance business is charged to tax under Case I of Schedule D in respect of that business then subsections (2) and (3) of new section 83B shall not apply. Subsection (8)(b) provides that for a company carrying on life assurance business which is charged to tax under the I minus E basis, i.e. otherwise than under Case I of Schedule D:

• Subsection (2)(a)(ii) of new section 83B shall have effect as if it were an expense of management rather than a charge on income, and

• the relevant amount is reduced by the amount (if any) that is not referable to basic life assurance and general annuity business (BLAGAB).

Subsection (8) also provides that the amount "not referable" to BLAGAB in subsection (8)(b)(ii) is determined by section 432A of the Income and Corporation Tax Act 1988 as if the amount were a gain accruing on the disposal of the qualifying investment to the company.

11. Subsection (9) defines various terms. A qualifying investment is defined as:

• shares or securities which are listed or dealt in on a recognised stock exchange;

• units in an authorised unit trust;

• shares in an open-ended investment company; and

• an interest in an offshore fund.

12. Subsection (10) provides that the market value of a qualifying investment is to be determined in the same way as for capital gains tax. Subsection (10) is subject to subsection (11).

13. Subsection (11) provides that in the case of an interest in an offshore fund for which there are separate buying and selling prices, section 272(5) of the Taxation of Capital Gains Act 1992 shall apply to determine the market value of the interest.

14. Subsection (2) of the Clause amends section 338 of the Income and Corporation Taxes Act 1988 (charges on income) to include the new relief.

15. Subsection (3) of the Clause brings this section into effect for disposals made by:

• individuals on or after 6 April 2000 and

• companies on or after 1 April 2000.

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16. Currently individuals and companies can get tax relief for gifts of cash to a charity under the Gift Aid scheme and, in the case of individuals only, the Payroll Giving Scheme.

17. Where assets other than cash are donated to charity, the disposal is treated as having been made for no gain/no loss for capital gains purposes. In addition, traders can get relief for gifts of trading stock or equipment to charity.

18. The new income tax relief for gifts of qualifying investments has the following advantages:

• they are generally high-quality, readily-realisable assets which will be of value to charities
• they generally have an easily-identifiable valuation which can be adopted for the purposes of the tax relief — this will minimise the costs of valuations for both the donor and the Inland Revenue.

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