I.1.1 Charities may claim exemption from tax on most forms of income and capital gains, if they are applied to charitable purposes.
I.1.2 Once a body has been accepted as being a charity for tax purposes, it normally retains its charitable status until such time as it ceases to exist either in its original form or altogether.
I.2.1 The main statutory exemptions from tax for the income of a charity are contained:
These exemptions relate to:-
All charitable tax exemptions are subject to the condition that income is applied to charitable purposes.
I.3.1 The profits of a property business carried on by a charitable company are chargeable to tax under section 209 Corporation Tax Act 2009 (CTA 2009). Section 485 CTA 2010 provides an exemption from tax for the income of a property business.
I.3.2 The profits of a property business carried on by a charitable trust are chargeable to tax under Parts 2 and 3 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005). Section 531 ITA 2007 provides an exemption from tax for the income of a property business.
I.3.3 The exemption applies to income from property businesses both in the UK and overseas.
I.3.4 The exemptions do not apply to profits from buying and selling land or profits arising from the development of land.
I.3.5 If a charity is buying and selling land or property this may be treated as non-primary purpose trading. The profits of such a trade will be chargeable to tax under section 2 CTA 2009 or section 5 ITTOIA 2005. The detailed guidance on trading is at BIM20051 - Trade: general: overview.
I.3.6 If a charity sells land that has been held as an asset any gain will normally be a capital gain. Section 256 Taxation of Chargeable Gains Act 1992 (TCGA 1992) provides an exemption for capital gains provided the gain is applied to charitable purposes only. However, if a contract for the sale of land includes a provision for the charity to share in future profits from the development of that land any such profits received will not be exempt; they will be chargeable under Part 18 CTA 2010 (section 815 et seq) or section 755 ITA 2007. The detailed guidance on this is at BIM60300 - Land transactions.
I.4.1 Sections 475/476, 486 & 488 CTA 2010 and sections 532 & 534 ITA 2007 provide for an exemption to charitable companies and charitable trusts respectively in respect of :
I.4.2 Any payment from one charity to another charity is taxable income in the hands of the recipient charity – section 523 ITA 2007 (trusts) and section 474 CTA 2010 (companies) refer. But it is exempt from tax if it is applied for charitable purposes only.
I.4.3 Section 488 CTA 20101988 and Section 536 ITA 2007 provide for exemption from tax in respect of dividends and other distributions received by charitable companies and charitable trusts respectively from companies not resident in the UK.
I.5.1 A charity is exempt from tax on the profits of any trade carried on in the United Kingdom or elsewhere provided its income is applied solely to charitable purposes and which is either
I.5.2 The exemption from tax of a charity's trading income is considered in detail in Annex IV.
I.6.1 Section 256 TCGA 1992 provides an exemption from tax on capital gains, provided the gains are applied for charitable purposes.
I.7.1 Occasionally charities seeking to claim exemption from foreign tax from an overseas tax authority may request confirmation that they are subject to UK tax. Certain Double Taxation Agreements provide that a resident of the UK will be entitled to exemption or relief from the foreign tax on certain types of income only if he or she is subject to tax on that income in the United Kingdom.
I.7.2 Charities should be aware that a person is not regarded as subject to tax in the UK if the income in question is statutorily exempt from tax.
I.8.1 Exemption from tax on the profits from fund-raising events is provided as follows:
