Since 2006 we have had specific rules for substantive donor anti-avoidance, targeting donations where value can be extracted from the charity. These caught donations of over £25,000 within 12 months or £150,000 over 6 years, but there were some RP exemptions. However, care was still needed to ensure that donations were not caught.
The new tainted donations rules introduced in April 2011 are meant to simplify the use of the exemption for RPs and stop the innocent from being caught. However, given the complicated structures that some housing association groups currently operate under, the new exemptions may not apply. The new rules also do not have a de minimis and so can catch any size donation or return of value. Care therefore continues to be needed when structuring donations.
The new tainted donation rules will apply if all the following conditions are met.
- the donor or a person connected with them enters into an arrangement where it is reasonable to assume that the donations and arrangements would not be entered into separately
- one of the main purposes of the arrangements is to obtain a direct or indirect financial advantage from the charity
- the donor is not a qualifying charityowned company or relevant housing provider linked with the charity to which the donation is made.
A relevant housing association is linked with a charity if it is a whollyowned subsidiary or both the housing association and charity are under the same control; as such the new rules will help most housing associations. However, because of the variety of structures that have arisen within this sector, not all housing association groups will meet the exemption definitions. This means that trading entities within the housing association group could lose gift aid relief on their entire donation if it can be found to be associated with another transaction between the donor company and the charity, where the terms are even marginally unfavourable to the charity. This is a major change to the old rules where there was a size test and the relevant effect was on the receiving charity not the donor entity.
It is important to review your structure to ensure you will not be caught by the new rules that apply for the current year. If you rely on charity donations to eliminate your tax charge it is important to ensure that you will not be caught under the new rules. If the exemption does not apply then all transactions with the charity must be reviewed to ensure there is no risk of return of value.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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