1. This clause introduces new legislation which disapplies the provisions of Chapter 1A of Part XV of the Income and Corporation Taxes Act 1988 where interest free, or low interest, loans of money are made by an individual to a charity.

2. Chapter 1A of Part XV of the Income and Corporation Taxes Act 1988 is anti-avoidance legislation which prevents individuals from avoiding tax by transferring their assets to others. The new legislation disapplies those provisions to the extent that an interest free, or low interest, loan of money is made by an individual to a charity.

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3. Subsection (1) specifies that the definition of a "settlement" for the purposes of Chapter 1A of Part XV of the Income and Corporation Taxes Act (ICTA) 1988 does not include an interest free, or low interest, loan of money made by an individual to a charity.

4. Subsection (2) provides a definition of a "charity". This is the same definition that is used in the rest of the Taxes Act.

5. Subsection (3) is a commencement provision. The new provisions will apply to income arising on or after 6 April 2000 from loans made on or after 6 April 2000 and from loans already in existence on 6 April 2000.

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6. The legislation in Chapter 1A of Part XV (Sections 660A to 660G) of ICTA 1988 is anti-avoidance legislation, known as the "settlements" legislation. Settlements, such as dispositions, trusts, covenants, agreements, arrangements or a transfer of assets are sometimes used by people to avoid tax and this legislation exists to deter that. The rules operate by treating income of a settlement as the income of the settlor for tax purposes under certain circumstances.

7. At present where an individual makes an interest free, or low interest, loan of money to a charity, that "arrangement" is caught by Chapter 1A of Part XV of ICTA 1988. As a result if the charity invests that loan then any investment income arising is treated as the income of the settlor (the person making the loan).

8. Charities find interest free, or low interest, loans useful as they provide them with a source of free, or cheap working capital and / or investment income. The provisions of Chapter 1A of Part XV of ICTA 1988 can already be avoided by entering into specific arrangements with the charity, and in practice the Inland Revenue have not applied the legislation in many cases. However to encourage more people to make such loans the Government has decided to remove this potential charge.

9. Settlors affected by these changes will no longer need to include on their self assessment returns income which the new provisions take outside the charge to tax in Chapter 1A of Part XV of ICTA 1988. A revised version of the self assessment helpsheet (IR270) will be available later which will explain the changes and help settlors calculate the amounts of any taxable income.

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