Part 2 Charities

5.23 Gifts of land, buildings, shares and securities is not Gift Aid

5.23.1 This relief is intended to act as an incentive for donors to gift these investments to charity. Such gifts do not fall within the Gift Aid scheme, as they do not take the form of payments of a sum of money. No tax is deducted from the gift so charities do not need to reclaim any tax from HMRC in connection with the gift.

5.24 What should the recipient charity do with the gift?

5.24.1 That is entirely for the charity to decide. The investments can be sold immediately, or later, and the proceeds used for charitable purposes or they can be retained by the charity as an investment.

5.24.2 If the charity decides to retain a gifted investment of shares or securities, it will probably receive dividend income. The tax credit attaching to the dividend is not payable, but the charity may be able to claim Tax Credit Transitional Relief – see Chapter 6, paragraphs 6.6 – 6.9.

5.24.3 Any gift of investments to a charity is not an investment by the charity. So the charity will not be treated as having made an investment that is not a 'qualifying investment' for the purposes of Schedule 20 Income & Corporation Taxes Act 1988 where the cost of the investments is treated as 'non-qualifying expenditure' and can give rise to a tax charge. A sale of investments to a charity at undervalue does, strictly, involve the charity in making an investment. Where those investments are not 'qualifying investments' for the purposes of Schedule 20 we would be unlikely to treat their cost as 'non-qualifying expenditure' if they were acquired for significantly less than they were worth and no tax avoidance was involved.

5.25 How does the charity realise the value of the gift?

5.25.1 Once the shares have been transferred into the charity's name, the shares may be sold through a stockbroker or bank. The charity may already have an existing relationship with a stockbroker or an investment manager who can help them. If not, names of stockbrokers can be obtained from the London Stock Exchange or the Association of Private Client Investment Managers (APCIMs).

5.25.2 There will be a commission charge for selling shares.

5.25.3 The proceeds of such a sale cannot come within Gift Aid.

5.25.4 Some charities may ask donors to sell the investments on their behalf. There must be satisfactory evidence of the investments having been given to the charity and the charity asking the donor to sell them on the charity's behalf. This will not affect entitlement to the relief. The evidence is important because otherwise we might treat the gift as a Gift Aid donation of the cash realised. The donor may also incur a Capital Gains Tax (CGT) charge and will not receive relief for the full value of the gift.

5.26 How can a potential donor find out about the relief?

5.26.1 All the necessary information is contained in this guidance note.

5.27 What is the amount of relief and date of gift?

5.27.1 Where qualifying investments are given to a charity the amount of the relief that can be claimed by the donor is the market value of the investments on the day they are given to the charity.

5.27.2 The date on which the gift is made is the day on which the whole of the beneficial ownership of the investments is transferred to the charity. This is usually the date on which the donor:

  • signs the stock transfer document
  • in the case of electronic lodgement under the crest system, gives written instruction for his broker to irrevocably transfer the investment
  • where the charity asks the donor to sell an investment (see paragraph 5.35), gives written intention of irrevocable transfer to the charity

This is important because the shares will come out of the donor's name on the company's register at a later date and the value of the shares may have changed in the meantime. The donor may also continue to receive communications, including dividends, from the company until the transfer has been registered.

5.27.3 It would be good practice for the charity to keep records of the date of transfer so that they can help the donor, if necessary.

5.27.4 The amount of any incidental costs of making the gift – for example any brokers fees can also be claimed.

5.27.5 Any amount of consideration or the value of any benefits received by the donor, or persons connected with them, in connection with the gift must be deducted from the amount of relief.

5.27.6 Where a qualifying investment is sold to a charity at below market value the amount of the relief will be based on the market value less the consideration received for the sale.

5.28 What is the charity's Capital Gains Tax (CGT) position?

5.28.1 There is an existing relief from Capital Gains Tax or corporation tax on chargeable gains for gifts of assets to charity. Conversely, you cannot take advantage of a loss for CGT purposes. In that instance, gifting shares to a charity might not be appropriate.

5.28.2 Normally, when an individual or company gives away assets, including land, buildings, shares and securities, or sells them for less than their market value they are charged to tax as if they had sold the assets for their market value. The person acquiring the assets is treated as having acquired them for their market value.

5.28.3 Where assets are sold to a charity for more than they cost, but for less than their market value the charge to tax is based on the actual disposal proceeds. The person acquiring the assets is treated as having acquired them for that same amount.

5.28.4 Where assets are given to a charity, or sold to a charity for no more than they cost

  • the donor is treated as having disposed of them for such an amount as gives rise to neither a gain nor a loss
  • on any subsequent disposal by the charity the calculation of any gain is based on the date and cost of the donor's original acquisition. The original cost is reduced by the 'relevant amount'– the market value of the investments in the case of a gift or the difference between market value and consideration received in a sale at under-value. So long as the charity applies the disposal proceeds for charitable purposes any gains will be exempt from tax

The following examples illustrate this:

Example 6

A donor has 1000 shares in EFG plc, a company listed on the London Stock Exchange. The shares cost £2 each and are valued at £4.50 each. The donor sells the shares, at under-value, to a charity for £2 each. Indexation and taper relief are ignored in this example

The donor is treated as having disposed of the shares for £2 each so neither a gain nor a loss arises. The relevant amount is:

  • the value of the shares - £4,500
  • less the amount the charity pays - £2,000
  • total = £2,500

The cost to the charity for the purposes of any subsequent disposal will be:

  • the donor's original acquisition cost - £2,000
  • less the 'relevant amount' £2,500

Because the relevant amount exceeds the original cost the cost for any subsequent disposal is treated as nil.

Example 7

A donor has 100 shares in FC plc, a company listed on the Alternative Investment Market. The shares cost £2 each and are valued at £3 each. The donor sells the shares, at undervalue, to a charity for £2 each. Indexation and taper relief are ignored in this example.

The disposal proceeds do not exceed cost so the donor is treated as disposing of the shares for £2 each and so neither a gain nor a loss arises. The relevant amount is:

  • the value of the shares - £300
  • less the amount the charity pays - £200
  • total = £100

The cost to the charity, for the purposes of any subsequent disposal, will be:

  • the donor's original acquisition cost - £200
  • less the relevant amount - £100
  • total = £100

5.29 Valuation of investments

5.29.1 Donors need to know the market value of their investments at the date of disposal so that they can calculate the amount of relief due. Charities need to know the market value at that date so that they can calculate the 'relevant amount' and so establish their own base cost for the investments.

5.29.2 The values of most qualifying investments can be found in the financial pages of newspapers such as the Financial Times. It is advisable for donors to establish the market value of the investment at the time it is given to the charity. Finding it out later may involve time-consuming research.

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