Finance Act 2006

54Transactions with substantial donorsU.K.

(1)After section 506 of ICTA insert—

“506ATransactions with substantial donors

(1)This section applies to the following transactions—

(a)the sale or letting of property by a charity to a substantial donor,

(b)the sale or letting of property to a charity by a substantial donor,

(c)the provision of services by a charity to a substantial donor,

(d)the provision of services to a charity by a substantial donor,

(e)an exchange of property between a charity and a substantial donor,

(f)the provision of financial assistance by a charity to a substantial donor,

(g)the provision of financial assistance to a charity by a substantial donor, and

(h)investment by a charity in the business of a substantial donor.

(2)For the purposes of this section a person is a substantial donor to a charity in respect of a chargeable period if—

(a)the charity receives relievable gifts of at least £25,000 from him in a period of 12 months in which the chargeable period wholly or partly falls, or

(b)the charity receives relievable gifts of at least £100,000 from him in a period of six years in which the chargeable period wholly or partly falls;

and if a person is a substantial donor to a charity in respect of a chargeable period by virtue of paragraph (a) or (b), he is a substantial donor to the charity in respect of the following five chargeable periods.

(3)A payment made by a charity to a substantial donor in the course of or for the purposes of a transaction to which this section applies shall be treated for the purposes of section 505 as non-charitable expenditure.

(4)If the terms of a transaction to which this section applies are less beneficial to the charity than terms which might be expected in a transaction at arm's length, the charity shall be treated for the purposes of section 505 as incurring non-charitable expenditure equal to that amount which the Commissioners for Her Majesty's Revenue and Customs determine as the cost to the charity of the difference in terms.

(5)A payment by a charity of remuneration to a substantial donor shall be treated for the purposes of section 505 as non-charitable expenditure unless it is remuneration, for services as a trustee, which is approved by—

(a)the Charity Commission,

(b)another body with responsibility for regulating charities by virtue of legislation having effect in respect of any Part of the United Kingdom, or

(c)a court.

506BSection 506A: exceptions

(1)Section 506A shall not apply to a transaction within section 506A(1)(b) or (d) if the Commissioners for Her Majesty's Revenue and Customs determine that the transaction—

(a)takes place in the course of a business carried on by the substantial donor,

(b)is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm's length, and

(c)is not part of an arrangement for the avoidance of any tax.

(2)Section 506A shall not apply to the provision of services to a substantial donor if the Commissioners determine that the services are provided—

(a)in the course of the actual carrying out of a primary purpose of the charity, and

(b)on terms which are no more beneficial to the substantial donor than those on which services are provided to others.

(3)Section 506A shall not apply to the provision of financial assistance to a charity by a substantial donor if the Commissioners determine that the assistance—

(a)is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm's length, and

(b)is not part of an arrangement for the avoidance of any tax.

(4)Section 506A shall not apply to investment by a charity in the business of a substantial donor where the investment takes the form of the purchase of shares or securities listed on a recognised stock exchange.

(5)A disposal at an undervalue to which section 587B applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

(6)A disposal at an undervalue to which section 257(2) of the 1992 Act (gifts of chargeable assets) applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

(7)In the application of section 506A payments by a charity, or benefits arising to a substantial donor from a transaction, shall be disregarded in so far as they—

(a)relate to a donation by the donor, and

(b)do not exceed the relevant limit in relation to the donation for the purposes of section 339 or section 25 of the Finance Act 1990.

(8)A company which is wholly owned by a charity within the meaning of section 339(7AB) shall not be treated as a substantial donor in relation to the charity which owns it (or any of the charities which own it).

(9)A registered social landlord or housing association shall not be treated as a substantial donor in relation to a charity with which it is connected; and for that purpose—

(a)“registered social landlord or housing association” means a body entered on a register maintained under—

(i)section 1 of the Housing Act 1996,

(ii)section 57 of the Housing (Scotland) Act 2001, or

(iii)Article 14 of the Housing (Northern Ireland) Order 1992, and

(b)a body and a charity are connected if (and only if)—

(i)the one is wholly owned, or subject to control, by the other, or

(ii)both are wholly owned, or subject to control, by the same person.

506CSections 506A and 506B: supplemental

(1)A gift is “relievable” for the purposes of section 506A(2) if relief is available in respect of it under—

(a)section 83A,

(b)section 339,

(c)sections 587B and 587C,

(d)section 25 of the Finance Act 1990 (individual gift aid),

(e)section 257 of the 1992 Act (gifts of chargeable assets),

(f)section 63 of the Capital Allowances Act (gifts of plant and machinery),

(g)sections 713 to 715 of ITEPA 2003 (payroll giving),

(h)section 108 of ITTOIA 2005 (gifts of trading stock), or

(i)sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts).

(2)A charity is treated as incurring expenditure in accordance with section 506A(4) at such time (or times) as the Commissioners determine.

(3)Section 506A applies to a transaction entered into in a chargeable period with a person who is a substantial donor in respect of that period, even if it was not until after the transaction was entered into that he first satisfied the definition of “substantial donor” in respect of that period.

(4)Either or both of subsections (3) and (4) of section 506A may be applied to a single transaction; but any amount of non-charitable expenditure which a charity is treated as incurring under section 506A(3) in respect of a transaction shall be deducted from any amount which it would otherwise be treated as incurring under section 506A(4) in respect of the transaction.

(5)Two or more connected charities shall be treated as a single charity for the purposes of section 506A and 506B and this section; and for this purpose “connected” means connected in a matter relating to the structure, administration or control of a charity.

(6)Where remuneration is paid otherwise than in money, section 506A(5) shall apply as to a payment in money of the amount that would, under Part 3 of ITEPA 2003, be the cash equivalent of the remuneration as a benefit.

(7)In sections 506A and 506B and this section—

(a)a reference to a substantial donor or other person includes a reference to a person connected with him within the meaning of section 839,

(b)“financial assistance” includes, in particular—

(i)the provision of a loan, guarantee or indemnity, and

(ii)entering into alternative finance arrangements within the meaning of section 46 of the Finance Act 2005, and

(c)a reference to a gift of a specified amount includes a reference to a non-monetary gift of that value.

(8)On an appeal against an assessment the Special Commissioners may review a decision of the Commissioners in connection with section 506A.

(9)The Treasury may by regulations vary a sum, or a period of time, specified in section 506A(2).”

(2)This section shall have effect in relation to transactions occurring on or after 22nd March 2006; and for that purpose a person may satisfy the definition of “substantial donor” by reference to gifts made at any time.

(3)But this section shall not have effect in relation to a transaction entered into in pursuance of a contract made before 22nd March 2006 (otherwise than in pursuance of a variation on or after that date).