Writing for Taxation magazine’s Readers’ Forum, BKL tax consultant Terry Jordan responds to a reader’s query about the UK tax implications of a German national who is UK-resident making a donation of quoted German stocks to a German registered charity.
‘My client is a German national who is both UK resident and domiciled. She was about to make a substantial donation of quoted German stocks to a German registered charity. Until the recent Budget I was happy that she would be entitled to UK tax relief on the donation. Additionally, the gift would not be subject to UK capital gains tax as the no gain-no loss rules would apply.
Following the chancellor’s announcement of the restriction of charitable reliefs to UK charities, would readers confirm my understanding that such a gift by my client will no longer attract income tax relief and any capital gain on the gift would now be subject to UK capital gains tax. I also assume that the gift will be a potentially exempt transfer for inheritance tax purposes whereas before it would have been exempt.
Am I correct or have I misunderstood the Budget announcement?’ Query 20,116 – Herr Gift.
Terry Jordan’s reply: The gift would for inheritance tax be an immediately chargeable transfer.
‘Herr Gift’s client, although a German national, is resident and domiciled within the UK for taxation purposes. Accordingly, there is no possibility of the remittance basis of taxation applying and her world-wide assets are within the scope of UK inheritance tax.
The inheritance tax exemption for gifts to charity in IHTA 1984, s 23 could historically apply to charities incorporated in the UK, the EU, Norway, Iceland and Liechtenstein, but importantly non-UK charities must have had exclusively charitable purposes under our domestic law; in other words, it would not have been sufficient for the German registered charity to be charitable under German law, it would have had to be charitable under our law. A charity is established for charitable purposes if it meets the definition in the Charities Act 2011, s 2. It must exist for a purpose as described and meet a public benefit test.
The description of purposes includes:
- the prevention or relief of poverty;
- the relief for those in need by reason of youth, age, ill-health, disability or financial hardship;
- the advancement of education, religion, health, citizenship, community development, arts, culture, heritage, science, amateur sport, human rights, conflict resolution, religious or racial harmony, equality and diversity, environmental protection, animal welfare; and
- the promotion of the efficiency of the armed forces or emergency services.
The word ‘charitable’ in IHTA 1984, s 23(6) has its technical legal meaning (for inheritance tax and other tax purposes) as set out in the FA 2010, Sch 6 para 1. The determination of charitable status is a matter of statute and, among other requirements, to be accepted as a charity for tax purposes a body or trust must be a charity in law.
There is a transitional period until next year for non-UK charities that had asserted their charitable status with HMRC by 15 March 2023 – the draft legislation is in para 343 of the Finance (No 2) Bill published on 23 March – so the client might still be able to make her gift with inheritance tax exemption and no gain/no loss treatment for capital gains tax purposes.
Should the charity exemption not be available, the mooted gift would for inheritance tax be an immediately chargeable transfer, not potentially exempt. It would be analogous to Arron Banks’ gifts to UKIP which did not qualify for exemption under IHTA 1984, s 23.’
The full article is also available on the Taxation website.
Our experts in private client tax and international tax can advise on the tax implications of situations involving more than one jurisdiction. Our German desk offers guidance to German nationals planning to relocate or expand to the UK. We also have a specialist team for charities and not-for-profit organisations. For more information, please get in touch with your usual BKL contact or use our enquiry form.