Supporting A Foreign Charity? Tax Relief Restricted
Only UK charities are eligible for charitable tax reliefs such as Gift Aid, following changes announced by the chancellor in the recent budget (subject to transitional provisions). The restriction is, unsurprisingly, a further Brexit-related move to ensure only UK charities benefit from tax exemptions.
Until March, charities and Community Amateur Sports Clubs (CASC) located in the UK, as well as in the European Union or the EEA, could qualify for charitable tax reliefs in the UK.
As of 16 March 2023, non-UK charities are particularly impacted following a change in the definition of charities – which effectively restricts the tax treatment of donations made to non-UK charities. The amendment will be introduced by the Finance (No 2) Bill 2023.
A charity for the purposes of qualifying for UK charitable tax reliefs is now defined as a charity that is within the jurisdiction of the High Court in England, Wales or Northern Ireland, or the jurisdiction of the Court of Session in Scotland.
How will this work in practice?
From 16 March, non-UK charities can no longer claim tax relief for donations made by a UK-based individual or corporate entity, unless they are still eligible under transitional arrangements (which benefit them for almost another year).
Under the transitional arrangements, non-UK charities which asserted their UK charitable status with HM Revenue & Customs by 15 March 2023 can still claim charitable tax relief until April 2024.
What happens from April 2024?
Where the non-UK charity has continued to benefit under the transitional arrangements, the availability of charitable tax relief will end in respect of corporate donations after 1 April; and individuals’ donations after 5 April.
Furthermore, UK tax relief for tax payers (income tax, CGT and IHT reliefs); and gift aid relief for non-UK entities will no longer be available on donations to non-UK charities after April 2024.
Similar changes are made in relation to donations to CASCs – the definition of a CASC has changed such that it must be based in the UK and provide facilities for eligible sports in the UK.
Key takeaways
Non-UK charities need to be aware of the withdrawal of tax relief where donations are made by UK donors. They will now lose any UK charitable tax status and therefore eligibility for charitable tax relief – unless they have a UK presence.
For the taxpayer, donations made to non-UK charities may cost them extra money and they need to take this into account when deciding the level of donations to make and whether to now restrict their donations to UK-based charities.
The government estimates that the change will impact around 2,000 individuals who have been claiming higher rate relief on donations to non-UK charities but will no longer be eligible.
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