Charities and bond-washing

Earlier this year, HMRC approached a small number of charities, charitable common investment funds and professional advisers to establish whether they had incurred, or their clients may have incurred, any liabilities under the bond-washing legislation. As a result of constructive discussions with these charities, it has become clear that the risk of liability in this area is less than had been thought. HMRC and the charities concerned are working to resolve any outstanding issues as quickly as possible, and at minimum cost to the charities involved. In the few cases where there is a potential tax liability, it is clear that the liability arose inadvertently and the charities were not expecting such liabilities to arise. In these circumstances HMRC will only be considering "in date" tax years (covering liabilities over the previous six years). Contrary to some press reports, HMRC will not be seeking penalties. There may be some liability to interest where tax is paid later than it ordinarily would have been.

On the basis of the results of our work to date, HMRC is not proposing to extend this initial exercise any further. So, we will not be contacting any more charities or investment managers conducting business on behalf of charities with questions relating to bond-washing. HMRC will of course continue to monitor the operation of charitable tax reliefs to ensure that these are not abused.

This work on bond-washing has suggested that there are some issues around the application of the bond-washing legislation to charities that do need to be looked at in more detail, particularly where it is clear that tax avoidance was not the purpose of the transactions, and HMRC will be working with the charity sector over the summer on these issues.