In the recent Budget, the Government announced considerable territorial changes to charitable tax relief. Overall, the changes mean that only UK charities and gifts to UK charities will qualify for UK tax relief going forward.
This is a major change as, under the previous regime, certain gifts to charities in the EU and European Economic Area (including Iceland, Liechtenstein and Norway) would have been be eligible for UK tax relief. This will clearly be of interest to individuals who are tax resident in the EU and European Economic Area who have an exposure to UK tax, as well as UK resident individuals who give to (or plan to bequeath) non-UK charities.
The measures came into effect on 15 March 2023, but certain transitional arrangements are in place so non-UK charities that already benefit can continue to do so until April 2024.
Whilst the changes also have an impact on corporates and trustees, individuals should be aware of the impact of the rules on their estate and succession plans. From a tax planning perspective, the main taxes impacted by the changes are as follows:
- Income tax:iIndividual taxpayers will be unable to reclaim the basic rate tax they pay when they donate to non-UK charities.
- Capital Gains Tax (CGT): donors to non-UK charities may be subject to capital gains tax on the disposal of UK land to non-UK charities.
- Inheritance Tax (IHT): gifts to non-UK charities will no longer benefit from IHT relief, thereby affecting individuals who had planned to utilise the reduced IHT rate of 36% on death by leaving 10% or more of their net estate to a non-UK charity.
The changes are clearly significant and will cause unintended tax consequences for individuals who have structured their lifetime giving and succession affairs (i.e. wills) based on the old rules. It is recommended that those individuals reassess their charitable giving.