SolvedIHTM11112 | General outline: meaning of ‘charity’ and ‘charitable’
From HM Revenue & Customs · Inheritance Tax Manual
Transfers of value made on or after 1 April 2012
For transfers of value made on or after 1 April 2012, IHTA84/S23 relies on the definition of “charity” contained within Schedule 6, FA 2010. A charity is defined as a body of persons or a trust that;
On 27 January 2009, the ECJ gave its judgement in the case of Hein Persche v Finanzamt Ludenscheid which determined that member states could not impose a territorial restriction on a charity exemption. Previously, the exemption was restricted to charities established in the UK.
Following this case, in FA2010, the law relating to charity exemption and the definition of ‘charity’ was changed and was extended to include charities established in the EU and other specified countries. The amending legislation which included new conditions that have to be met took effect from 1 April 2010 for Gift Aid and 1 April 2012 for Inheritance Tax and other taxes.
From 15 March 2023 (or 1 April 2024 for bodies that have asserted their status as a charity), the jurisdiction rules change further (IHTM11116).
HMRC Charities are responsible for deciding whether a charity meets the new definition and is a qualifying charity. HMRC Charities will also determine which countries are specified for this purpose.
Legislative changes mean that for transfers of value made to bodies that have not already asserted their status as a charity prior to 15 March 2023, will not be exempt for Inheritance Tax (IHT) purposes where the body in question is not based in the UK. Similar rules apply from 1 April 2024, however this is in relation to transfers of value made to bodies that have asserted their status. In summary, from 1 April 2024 onwards, no transfer of value made to a body outside of the UK, will be exempt for IHT purposes.
Eligibility to the exemption is determined at the date of the transfer of value. HMRC Charities administer a non-statutory approvals process so that charities can obtain certainty in advance of receiving a donation. Those charities that are receiving UK tax reliefs at 1 April 2010 will automatically qualify.
If a charity meets all the conditions it may qualify for the exemption without having formal approval from HMRC Charities. In these cases, you may need to make further checks to establish the charitable status
In general, transfers made to a charity in England and Wales that has been registered with the Charities Commission can be accepted as exempt without enquiry. Similarly, transfers to charities that have been approved by HMRC Charities can be accepted as exempt without enquiry unless there are indications that the status of the charity has changed since the approval was given.
Further detail about the definition of ‘charity’ can be found on GOV.UK.
Transfers of value made between 27 January 2009 and 1 April 2012
You will need to apply the territorial extension of the charity exemption for transfers of value made between 27 January 2009 and 1 April 2012. These transfers should be dealt with on a case by case basis although a genuine gift to a charity that meets the new definition will usually qualify for the exemption. Any doubtful cases should be referred to Technical.
Transfers of value made before 27 January 2009
Before 27 January 2009 ‘charity’ and ‘charitable’ were defined by IHTA84/S272 as having the same meaning as in the Income Tax Acts. A charity was defined in the Taxes Act (ICTA88/s.506 (1)) as ‘any body of persons or trust established for charitable purposes only’. Income tax case law applied for IHT. In particular, this meant that
the charity had to be ‘established’ in the UK (‘established’ was defined by the Courts in Camille and Henry Dreyfus Foundation v IRC [1956] AC 39) and Gaudiya Mission and Others v Brahmachary and Others [1998] 2 WLR 175 (CA)), and
the terms ‘charity’ and ‘charitable’ must have had the same meaning in Scotland as in England (IRC v Glasgow Police Athletic Association [1953] AC 380 and Guild v IRC [1992] 2 WLR 397 [1992] 2 All ER 10), 1992 SLT 438)