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 HM Revenue & Customs (HMRC) in connection with the gift.
5.23.2 Since this relief was introduced it has been the subject of a number of marketed tax avoidance schemes. These schemes focus on obtaining increased relief for the donor and there is rarely any substantial value passed to the charity. If your charity receives a gift of shares or securities where there is a discrepancy between the apparent value and the amount that the charity is able to realise we would like you to tell us so that we can take action to protect this relief for genuine donors.
5.23.4 Sometimes a scheme provider may approach a single charity to
act as the recipient for all the 'gifts' in their tax avoidance
scheme. The charity may receive a fee for this but will not benefit from
the full value of the investments which usually just pass through the
charity. The amount of the fee may be very tempting but if an offer looks
too good to be true then it probably is. Acting as a conduit in this way
may also amount to non primary purpose trading and any profits would be
taxable. If you are asked to take part in such a scheme we would like
you to tell us.
5.24.1 That is entirely for the charity to decide. The investments can be sold immediately, or at a later date, 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. Charities cannot claim repayment of the tax credit attaching to dividends they receive.
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 Sections 558 and 559 Income Tax Act 2007 or Sections 511 and 512 Corporation Tax Act 2010 where the cost of non-qualifying investments is treated as 'non-charitable 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 Sections 558/559 ITA or Sections 511/512 CTA 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.
5.25.1 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 charge and will not receive relief for the full value of the gift.
5.26.1 All the necessary information is contained in Parts 1 and 2 of this guidance note.
5.27.1 Where qualifying investments are given to a charity the amount of the relief that can be claimed by the donor is called the 'relievable amount'. Details of how a donor should calculate the relievable amount is at paragraph 5.9.3.
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:
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 broker's 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 for the donor will be broadly based on the relevant value less the consideration they receive for the sale. There are more details at paragraph 5.9.4.
5.28.1 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.
5.28.2 Where assets are sold to a charity for more than they cost, but for less than their market value the charge to tax on any gain is based on the actual disposal proceeds.
The charity acquiring the assets is treated as having acquired them for the amount they actually paid.
5.28. 3 Where assets are given to a charity, or sold to a charity for no more than they cost the donor to acquire the donor is treated as having disposed of the assets for such an amount as gives rise to neither a gain nor a loss.
The charity acquiring the assets is treated as having acquired them for the same amount and at the same time as the donor's disposal proceeds less any relief claimed by the donor under the gifts of qualifying investments provisions. This means that the charity's acquisition cost is reduced which will lead to a larger chargeable gain on disposal of the assets. If the gain is applied for charitable purposes it will be exempt from tax.
The following examples illustrate this:
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 relievable amount is:
The cost to the charity for the purposes of any subsequent disposal will be:
Because the relievable amount exceeds the original cost to the donor, the cost for any subsequent disposal by the charity is treated as nil.
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 relievable amount is:
The cost to the charity, for the purposes of any subsequent disposal, will be:
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 'relievable 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.
