Proposed overhaul substantial donor law - charities would escape penalty

A few years ago legislation was introduced to ensure that unscrupulous people do not use charity tax breaks as a means to avoid personal tax. The law applies to people who have given, or are connected to someone who has given more than £25,000 in a single year to a charity. There are specific exemptions for legitimate transactions, but nonetheless the law has been criticised for being unduly complex and for penalising legitimate transactions. Furthermore, the law has been criticised because it is the charity which suffers if the law is breached rather than the donors themselves. This is because it ensures that charities are liable for taxation under the law if they make payments to substantial donors where the legislation has been breached. 

The draft Finance Bill proposes to amend the law by moving the liability from the donor from the charity. This would put the onus upon the donor by creating a "purpose test" to ensure that only people who intend to gain from their donation to charity and do not have genuine philanthropic intentions are penalised. 

This announcement will be welcome for most charities, but it remains to be seen how clear the final legislation will be if enacted. As always, the fear is that the existing law is replaced with something that is even more complex and difficult for charities to administer. However the proposals to remove the potential liability from charities and shift this on to the donors are certainly welcome.

Posted on: 10/12/2010

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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