Guidance

Annex viii A: tainted charity donations on or after 6 April 2026

Updated 9 April 2026

Read Annex viii for donations made on or before 5 April 2026.

1. Introduction

1.1

Schedule 3 to the Finance Act (FA) 2011 first introduced new anti-avoidance rules (the tainted charity donations rules) to prevent the abuse of the tax reliefs available to donors to charities and Community Amateur Sports Clubs (CASCs).

1.2

This guidance is produced in response to the changes to the tainted charity donation rules introduced by Finance Act 2026 and applies to donations made on or after 6 April 2026.

Where taxpayer donors receive financial assistance from a charity they have made a donation to (or a connected charity) or a Community Amateur Sports Club (CASC) then such donors, charities and CASCs need to consider whether these rules apply to their donations.

Donations to which these rules do not apply include, but are not limited to a:

• donation to charity where no additional arrangements are entered into
• donation under Gift Aid that has an associated benefit within the Gift Aid benefit limits (see sections 9 and 17 below)
• donation, any benefit of which has been taken into account in calculating the relief due for donations to charity of shares, securities and real property, or trading stock

1.3

The tainted charity donations rules ensure that the usual tax reliefs are not available where a donor (or a person connected with the donor) receives financial assistance from a charity or CASC they have donated to (or a connected charity) pursuant to arrangements that have been entered into by the donor (or the person connected with them).

1.4

The tainted charity donations rules for Income Tax are covered in Chapter 8 Part 13 of the Income Tax Act (ITA) 2007 with the same provisions broadly replicated for Corporation Tax in Part 21C of the Corporation Tax Act (CTA) 2010 and for Capital Gains Tax in Part 7 of the Taxation of Capital Gains Act (TCGA) 1992 sections 257A and 257B. The legislation is structured in the following way:

• a list of the tax reliefs to which the new rule applies
• the conditions that are to be satisfied for a donation to become tainted and when it becomes tainted
• the meaning of financial assistance
• circumstances to be ignored in determining whether there has been financial assistance
• removal of reliefs and imposition of a tax charge where the donation becomes tainted in the same year
• removal of reliefs and imposition of tax charge where the donation becomes tainted in a later year
• removal of reliefs and imposition of tax charge for associated donations
• supplementary definitions

1.5

This guidance explains the application of the tainted charity donations rules, highlighting where any differences in treatment are to be found between the effect for Income Tax, Corporation Tax and Capital Gains Tax.

For the purposes of this guidance references to ‘charity’ apply also to CASCs.

2. Outline of the tainted charity donations rules for donations made on or after 6 April 2026

2.1

3 conditions, A, B and C must be met for a donation to be a tainted charity donation.

Where all 3 conditions are satisfied, the donor loses any tax relief that they would have been entitled to claim, had the donation not been tainted. The changes made to the tainted charity donations rules by Finance Act 2026 means that Condition B, that needs to be met for a donation to be tainted, (read section 2.2) is now based on an outcome test as opposed to a purpose test. For donations made on or before 5 April 2026, the old rules still apply. Read ‘Annex viii: tainted charity donations on or before 5 April 2026’ for more information.

2.2

3 conditions, A, B and C must be met for a donation to be a tainted charity donation.

Where all 3 conditions are satisfied, the donor loses any tax relief that they would have been entitled to claim, had the donation not been tainted.

An additional charge to tax may also arise where the tainted donation would have been eligible for relief under the Gift Aid Scheme (for individual donors only) or where the donation is made by trustees. Read section 14 ‘Tainted charity donations and Gift Aid’ and section 16 ‘Donations from trusts’, for information about who’s liable to such a charge.

The 3 conditions which must be met for a donation to be tainted are:

• Condition A — the donor (or a person connected with the donor) enters into arrangements, which it is reasonable to assume would not have happened independently of the donation
• Condition B — the donor (or a person connected with the donor) who is not a charity receives financial assistance directly or indirectly from the charity to which the donation is made (or a connected charity) under or in connection with the arrangements
• Condition C — the donation is not made by a qualifying charity-owned company or relevant housing provider linked with the charity to which the donation is made

All 3 conditions must be met for the rules to apply.

The conditions are explained in more detail in section 4.1 onwards.

3. Relievable charity donations

3.1

These rules apply to donations that are defined as ‘relievable charity donations’ and that are made on or after 6 April 2026.

3.2

Section 809ZI ITA 2007 and section 939B CTA 2010 define a relievable charity donation as a gift or other disposal which is both:

• made by a person to a charity
• eligible for tax relief

3.3

A gift or other disposal is eligible for tax relief if one or both of the following apply:

• (ignoring the tainted charity donations rules) tax relief would be available in respect of it under the relevant relieving provision
• the charity is entitled to claim a repayment of tax in respect of it

3.4

The relevant relieving provisions are listed at section 809ZI(4) ITA 2007 and 939B(4) CTA 2010.

3.5

Where, under the terms of a settlement, a charity is entitled to receive income arising under that settlement, the tainted charity donations rules apply as if that income were an amount gifted to the charity by the trustees of the settlement.

4. Tainted charity donations

4.1

As explained at paragraph 2.2, a relievable charity donation only becomes a tainted donation where all of conditions, A, B and C are satisfied.

5. Condition A

5.1

‘Condition A’ looks at whether it’s reasonable to assume that there’s any inter-dependency between a donation and an ‘arrangement’ entered into by a donor (or person connected with the donor). If a donation is made and there are no arrangements in place, or any arrangements that are entered into are not dependent upon, or connected to, the donation being made, ‘Condition A’ will not be satisfied. The donation will not be a tainted charity donation.

If, however, a donor (or person connected with the donor) does enter into an arrangement, and it’s reasonable to assume that the donation would not have been made and the arrangements would not have been entered into independently of each other than ‘Condition A’ will be satisfied.

5.2

For the purposes of this test, any references to a linked person include a ‘donor’ or a person connected to the donor at the relevant time. ‘Relevant time’ means any time after the earliest of, when the:

• arrangements (referred to in ‘Condition A’) are entered into
• relievable charity donation is made
• arrangements are first materially implemented

5.3

The legislation requires a judgement to be made as to whether it’s reasonable to assume that a donation and arrangements would or would not have been made independently of each other. The judgement must take into account the likely effects of the donation and the arrangements and the circumstances surrounding the donation and the arrangements entered into.

For example, a charitable health provider may offer donors a priority treatment service, at a reduced cost, if their donations exceed £100. A donor who gives more than £100 with a view to making use of this priority treatment service would satisfy ‘Condition A’ as the donor would have made a donation as part of an arrangement to make use of the charity’s priority treatment service.

5.4

If ‘Condition A’ is not satisfied (that is, there’s no interdependence between the donation and arrangements entered into) the donation is not a tainted charity donation. Conditions B and C can be ignored.

6. Arrangements

6.1

The action of a donor making a donation to charity is not in itself entering into an arrangement. The term ‘arrangement’ is not exhaustively defined in the legislation (section 809ZR(1) ITA 2007 and section 939(I)(1) CTA 2010), but includes any scheme, arrangement or understanding of any kind and may involve one or more transactions.

6.2

An arrangement does not need to be legally enforceable. It could be an informal understanding between 2 parties that something will be done or some action will (or will not) be taken. For example, an individual may be sold some government securities at substantial undervalue on the understanding that within a specified period they will either return them or sell them and make a payment to a charity out of the proceeds. That would be an arrangement for these purposes.

Example 1

A donor gives £100,000 to a hospital (a charity) in recognition of the excellent treatment received by his son during his stay. The hospital subsequently writes to thank the donor for the unexpected donation.

6.3

In this example the donation will not be affected by the tainted charity donations rules. There was no arrangement in place for the hospital to provide any services in connection with the donation, so ‘Condition A’ does not apply. Even if his son (or any other person connected to the donor) were to receive further ongoing treatment at the hospital, a lack of an arrangement means that the donation will not be affected.

6.4

The making of a donation is not in itself an arrangement and this legislation clearly refers to both concepts separately. In this example, there’s a donation, but there are no arrangements and the hospital may spend the donation as it sees fit. It’s not under any obligation to provide the donor (or any member of his family) with specific medical treatment.

6.5

The position set out in example 1 would be different if the donor had agreed with the hospital that in return for a Gift Aid donation of £100,000 the hospital would provide treatment that would ordinarily cost £125,000. In this instance, there is clearly an arrangement in place. Further, the circumstances and likely effects are such that it is reasonable to assume that the donation would not have been made, and the arrangements would not have been entered into, independently of each other. There is a connection between the donation and the terms of the arrangement. Consequently, ‘Condition A’ would be satisfied.

6.6

It is worth noting that, in this modified example, the first principles of the Gift Aid rules would apply. The payment of £100,000 was clearly not a gift, having been made to secure treatment at a reduced rate, and therefore no tax relief would be available. There would not be any need to consider the tainted charity donations rules in this instance. However, if the donor entered into more circuitous arrangements in order to distance the Gift Aid donation from the benefit of medical treatment, the Gift Aid rules may not operate to deny relief. The tainted charity donations rules would then have to be considered.

7. Condition B

7.1

‘Condition B’ now examines the outcome of arrangements, rather than the motives behind entering into those arrangements. It looks at the arrangements entered into by the linked person and whether as a result of those arrangements a linked person, who is not a charity, receives financial assistance directly or indirectly from the charity (or a connected charity) to which the donation was made. If financial assistance is received, then ‘Condition B’ will be satisfied.

8. Financial assistance

8.1

The term ‘financial assistance’ includes, non exhaustively:

• a loan
• a guarantee
• an indemnity
• any form of investment

8.2

It does not matter whether the assistance has been received under arrangements made on arm’s length terms. For example, if a donor makes a donation of £20,000 to a charity on the understanding that the charity will provide the donor with a loan of £60,000 on commercial terms where security has been given and interest on the loan arises, the donor will still have obtained financial assistance from the charity. This is the case even though the transaction is on arm’s length terms.

8.2

Certain assistance is excluded from the scope of ‘financial assistance’ — read section 9 of this annex.

8.3

Example 3

Mr A is a trustee of 2 charities, charity B and charity C. Charity B is responsible for running a college and charity C provides financial support for the college. Mr A also controls company D which runs a leisure facility (swimming pool, gym, squash) which is used by the students of the college during school hours and fee-paying members of the public outside school hours.

Company D wants to expand the leisure facility to allow opening to the public in the day and to provide more up-market facilities. In other words, this is a wholly commercial development. To fund this, company D offers interest-free loan stock. Mr A makes a Gift Aid donation of £100,000 to charity B. Company D issues interest free loan stock of £125,000. Charity B subscribes for £125,000 of the loan stock and requests it be issued in the name of charity C.

8.4

In this example the donation is a tainted charity donation. There’s an arrangement in place that, in connection with the donation, the charity will provide an interest free loan (by buying loan stock) to a company connected with the donor. The donation would not have been made and the arrangements would not have been entered into independently of one another. Therefore, ‘Condition A’ will be satisfied.

8.5

A person connected with the donor (Company D) has received financial assistance by way of an interest-free loan for his company, and therefore ‘Condition B’ is satisfied. The donor is not a charity-owned company or relevant housing authority so ‘Condition C’ is satisfied and the donation is therefore a tainted charity donation.

Even if the loan to the donor’s company was not interest free this would still be a tainted donation because the arrangements have provided financial assistance to a linked person and is not within the provisions of s809ZL where financial assistance can be ignored.

9. When financial assistance is to be ignored

9.1

There are some circumstances in which financial assistance is to be ignored for the purposes of ‘Condition B’ (section 809ZL ITA 2007 and section 939E CTA 2010). Broadly, these circumstances are, where the:

• financial assistance is a payment made by a charity, on arm’s length terms, in respect of work carried out by a person for or on behalf of the charity or expenses incurred by a person in the course of such work
• financial assistance is in consequence of a qualifying Gift Aid donation, where the value of the assistance falls within the Gift Aid benefit rules
• financial assistance is in consequence of a qualifying charitable donation where the value of the assistance falls within the company charitable donations relief rules
• financial assistance has been taken into account in determining the ‘relievable amount’ for tax relief available as part of a gift of shares, securities and real property to charity
• financial assistance has been taken into account in determining the amount of tax relief available in respect of a gift of trading stock to charity

Example

A charity engages an individual to deliver a training session for volunteers. The charity pays the individual £150 for the work, which is the normal market rate for such services. The same individual also makes a Gift Aid donation of £500 to the charity

In this example the payment from the charity to the individual will be ignored in determining whether there is ‘financial assistance’ because the payment of £150 is made on arm’s length terms for work carried out for the charity. As such, Condition B will not be met and the donation will not be tainted.

10. Condition C

10.1

‘Condition C’ ensures that a donation will not be a tainted donation if the donor is a ‘qualifying charity-owned company’ or a ‘relevant housing provider’ linked with the charity to which the donation is made.

10.2

A ‘qualifying charity-owned company’ means a company that is wholly owned by one or more charities, one of which is the charity to which the donation was made, or a connected charity. This condition is restricted. A company will not be a qualifying charity-owned company where either:

• at any previous time, it was controlled by or carried on a trade or business previously carried on by a linked person
• at any time in the 4 years prior to the recipient charity or a connected charity gaining control of the company, it was controlled by or carried on a trade or business previously carried on by a person connected with a linked person

This restriction is designed to prevent a donor or connected person from taking themselves outside the scope of ‘Condition C’ by transferring to a charity a trade or business that the donor or connected person carried on.

10.3

A ‘relevant housing provider’ is a non-profit registered provider of social housing or a body entered on a register maintained under specified Housing Acts. A relevant housing provider is linked to a charity where one is wholly owned, or subject to control by the other, or both the relevant housing provider and charity are wholly owned (or subject to control) by the same person.

11. What happens where a donation becomes tainted in the same tax year or accounting period

11.1

Where a donation becomes tainted in the same tax year or accounting period in which it is made, the donor is not entitled to claim tax relief that would otherwise have been due in respect of it.

12. What happens where a donation becomes tainted in a later tax year or accounting period

12.1

Where a donation becomes tainted in a later year HMRC will take back any relief that the donor received in the year in which the donation was made.

12.2

Tax will be charged in the year in which the donation becomes tainted in an amount equal to the difference between the amount of tax for which the donor would have been liable in the donation tax year or accounting period had the donation become tainted in that year or period and the amount of tax for which the donor was in fact liable for in the donation year or period.

12.3

Where tax is payable, late payment interest as provided for in section 101 FA 2009 for Income Tax and Capital Gains Tax will apply to the tax charge from the 1 February following the tax year in which the donation was made. Where Corporation Tax is payable, section 87A of the Taxes Management Act (TMA) 1970 will apply to the tax charge from the day following the expiry of 9 months from the end of the accounting period of the company in which the donation was made.

Example

Sam, a donor and a higher-rate taxpayer, makes a Gift Aid donation of £10,000 to a charity and claims Income Tax relief in the year of his donation, 2025 to 2026. There is an understanding between Sam and the charity that, as a result of his donation, the charity will loan him funds in the future, should he require it. Arrangements have been entered into between Sam and the charity, and it is reasonable to assume those arrangements would not have been entered into independently of his donation. Condition A is met.

In tax year 2028 to 2029, Sam duly enters into a loan agreement with the charity. Sam has now received financial assistance in connection with the arrangements and Condition B is met. The donation has become tainted. As a result of the donation becoming tainted, Sam is not entitled to the original tax relief he claimed in his self assessment return filed with HMRC for the tax year 2025 to 2026.

HMRC will take back relief claimed by Sam in relation to the donation through a tax charge in the tax year 2028 to 2029. The amount taken back will be equal to the difference between the amount of Income Tax for which he would have been liable in the donation year had the donation become tainted in that year and the amount of Income Tax for which he was liable for in that donation year.

Absent the donation in the tax year 2025 to 2026 Sam would have paid an additional £2,500 in tax. Sam is therefore charged £2,500 in 2028 to 2029. Late payment interest on this sum will also be charged from 1 February 2027 to the date that he finally makes payment of the outstanding sum.

13. Removal or return of tax relief for associated donations

13.1

An associated donation is a relievable charity donation which is made under the same arrangements as a tainted donation, so long as it is not made by a qualifying charity-owned company or a relevant housing provider (in relation to the associated donation). It can be made before or after the tainted donation is made under the same arrangements.

The consequences of making an associated donation

13.2

Where the tainted donation made under the same arrangements as the associated donation (the original donation) becomes tainted before the end of the tax year or accounting period in which an associated donation is made (in relation to the tainted donation), tax relief is not available in respect of the associated donation.

13.3

Where the original donation becomes tainted after the end of the tax year or accounting period in which the associated donation is made (in relation to that tainted donation), in the year or period tainting occurs HMRC will take back any relief given in respect of the associated donation in the tax year or accounting period in which the associated donation was made.

13.4

Tax is charged for the tax year or accounting period in which the original donation becomes tainted of an amount equal to the difference between the amount of tax for which the linked person would have been liable in the associated donation year had the tainted donation become tainted in that year or period and the amount of tax for which the linked person was liable for in the associated donation year or accounting period.

13.5

To prevent double charging, the tax charge in the above paragraph will not apply in relation to the associated donation where the amount of tax due for the year or period in which that donation was made has already been re-assessed by virtue of the tainted donations provisions.

13.6

Late payment interest as provided for in section 101 FA 2009 for Income Tax and Capital Gains Tax will apply to the tax charge from the 1 February following the tax year in which the donation was made. Where Corporation Tax is payable, section 87A TMA1970 will apply to the tax charge from the day following the expiry of 9 months from the end of the accounting period of the company in which the donation was made

Example

Samantha is a higher-rate taxpayer and makes a Gift Aid donation of £50,000 to a charity in 2026 to 2027. In 2029 to 2030, Samantha makes an associated donation of £100,000 to the same charity.

The Charity buys a property with Samantha’s donations and rents this to Samantha in 2029 to 2030 at less than market value. The arrangements are tainted and the low rent is financial assistance to Samantha.

HMRC will take back relief given for the 2026 2027 donation through a tax charge in 2029 to 2030. The charge will be the difference between the amount of Income Tax self-assessed by Samantha in 2026 to 2027 and the recalculation of that Self Assessment following withdrawal of tax relief for the £50,000 gift. Samantha will also not be eligible to claim tax relief on the associated donation of £100,000 in 2029 to 2030.

Without tax relief for the tainted donation, Samantha would have paid additional tax of £12,500 in 2026 to 2027 Samantha is therefore charged this sum in 2029 2030, as well as being ineligible to claim any relief on the associated donation in that year.

Late payment interest is charged on both tax charges from the date on which they would have originally become due, which would be 31 January 2028 and 31 January 2031 for the years 2026 to 2027 and 2029 to 2030 respectively, until full payment is made.

14. Tainted charity donations and Gift Aid

14.1

Where there is a tainted donation and, absent the tainted donations provisions, Gift aid relief would have been available on that donation or an associated donation, the charity will continue to be entitled to make a repayment claim to HMRC in respect of Income Tax.

However, an Income Tax charge will arise in connection with this repayment of equivalent value to the amount of the repayment of tax that the charity would be entitled to claim in respect of the gift aid donation (whether or not the charity makes the repayment claim). The tax charge will be for the year in which the donation becomes a tainted donation.

The tax charge may fall on any or all of the following:

• the person making the gift aid donation
• the person making the tainted donation (if different from the person making the gift aid donation)
• any linked person who receives financial assistance from the related arrangements
• the charity receiving the gift aid donation (or tainted donation if different) or any connected charity

A charity can only be liable for this charge if it was party to the arrangements by virtue of which Condition A is met and was aware or ought reasonably to have been aware that a linked person would receive financial assistance by virtue of those arrangements. Further guidance can be found on this in section 16.

In practice, HMRC will be more likely to charge the donor and any other linked person.

14.2

To prevent double charging, HMRC will not levy this tax charge where the amount of Gift aid repayment claimed by the charity has already been repaid to HMRC under another provision of the Tax Acts.

15. Meaning of a charity being ‘party to’ and ‘aware of’ the tainted charity donation arrangements

15.1

A charity is jointly and severally liable to pay the Income Tax charge, where the charity was both:

• party to a relevant arrangement that caused the donation to become tainted
• aware, or ought to have been aware, that a linked person was party to an arrangement providing financial assistance as described in ‘Condition B’

In order for a charity to be affected by this provision it must also have been aware, or ought to have been aware, at the time it entered into those arrangements, that the arrangements were for the donor or a person connected with the donor to receive financial assistance, directly, or indirectly from the charity.

A charity would be ‘aware’ of the arrangements where the managers or persons in a position of authority or control of the charity had knowledge of the arrangements. Merely receiving a tainted donation would not on its own mean that a charity was ‘party to’ or ‘aware of’ such an arrangement.

The wording ‘ought to have been aware’ makes it clear that a charity cannot avoid this charge by ‘shutting its eyes’ to a situation where it ought to have been aware that a donation would be tainted. However, HMRC will not levy a charge on charities that are genuinely unaware that a donation was or would become tainted.

Example

Mr A donates £30,000 to Charity B, of which Mr A’s brother is trustee.

Two months later, the Charity awards a £25,000 building contract to Company C, which is owned and controlled by Mr A on arm’s length terms.

The charity trustees are responsible for signing off the charity’s finance team records who are responsible for processing donations and awarding service contracts.

It was evident from the finance team records available that Mr A, the donor, was the same person who entered the contract with the Charity as a person who controlled Company C.

There were also trustee meeting minutes evidencing how the (trustee) brother of Mr A influenced the decision to award the contract to Company C.

In these circumstances HMRC would conclude that the charity was or ought to have been aware of the arrangements entered into by Mr A, Charity B and Company C, meeting the conditions of A-C, resulting in the donation of Mr A being a tainted donation. In these circumstances Mr A and the Charity are likely to incur a tax charge.

16. Donations from trusts

16.1

Charging provisions, similar to those that apply in relation to tainted charity donations made by individuals under Gift Aid, apply in respect of certain donations to charity by a trust.

16.2

The provisions apply when the tainted donation is a payment by trustees out of trust income to a charity which is entitled to claim repayment of Income Tax in respect of that payment. The amount of the tax charge is equal to the amount the charity is entitled to reclaim.

16.3

The people on whom the tax charge may fall include:

• trustees of the settlement who made the trust donation
• the person making the tainted donation (if different)
• any linked person who receives financial assistance from the arrangements
• the settlor of a settlor-interested trust and any beneficiary of the settlement (whether or not the settlement is settlor-interested) who is party to the arrangements
• the charity, where the charity was party to the arrangements, and aware (or ought to have been aware) that a linked person had or would receive financial assistance under those arrangements

16.4

Example

Mr A settles a rental property worth £20 million on a non-charitable trust (the B Trust).

The trustees have discretion to apply the income arising for the benefit of the employees of D Industries Ltd as they consider to be appropriate. D Industries Ltd is controlled by Mr A and his immediate family.

A discretionary payment of £1 million is made out of the rental income by the B Trust to the trustees of the C Charitable Trust, whose trustees include Mr A. The C Charitable Trust has broad charitable objects, which it exercises in the towns in which D Industries Ltd is based.

The payment by the trustees of the B Trust to the C Charitable Trust is treated as if it were made after deduction of Income Tax at the trust rate of 50%. The trustees of the C Charitable Trust are treated as receiving a gross payment of £2 million on which £1 million tax has been paid.

They claim exemption from Income Tax under section 536 ITA 2007 and claim a repayment of £1 million. The trustees of the C Charitable Trust are immediately approached by the directors of D Industries Ltd requesting a loan.

The trustees agree to make a loan to D Industries Ltd of £1.9 million on commercial terms.

16.5

The discretionary payment of £1 million to the C Charitable Trust is a ‘relievable charity donation’. The donation is ‘tainted’ because a linked person, Mr A, has entered into arrangements (the discretionary payment and the subsequent advantageous loan) which leads to financial assistance from the charity (such as an advantageous loan of the gross amount of the discretionary payment). Consequently, an Income Tax charge of £1 million can be charged on the trustees of the B Trust, or any of the other persons identified in section 809ZO ITA 2007, which may include the trustees of the C Charitable Trust.

16.6

Example

Mr E settles a rental property worth £40 million on a non-charitable trust, the F Trust. One of the beneficiaries is the G Charitable Trust of which Mr E is a trustee. The G Charitable Trust is entitled, under the terms of the settlement, to 50% of the rental income arising to the F Trust.

During the tax year 2014 to 2015 the G Charitable Trust is entitled to rental income of £1 million. After paying basic rate tax the trustees of the F Trust pay £800,000 to the charity. The charity claims exemption from Income Tax and claims repayment of the tax credit £200,000.

Shortly afterwards H Ltd, a company controlled by Mr E, enters into an agreement with the charity to provide services to the charity from H Ltd. The agreement is not on arm’s length terms.

16.7

The payment of income to which the G Charitable Trust is entitled, under the terms of the settlement of the F Trust, is a ‘relievable charity donation’. The donation is ‘tainted’ because a linked person, H Ltd, has entered into arrangements that result in financial assistance from the charity (the service agreement). So Income Tax of £200,000 can be charged on the trustees of the F Trust to recover the tax repaid, or any of the other persons identified in section 809ZO ITA 2007, which may include the trustees of the G Charitable Trust.

17. Interaction with the Gift Aid benefit limits

17.1

If the only financial assistance received is a benefit associated with a Gift Aid donation and the benefit is within the limits set out in the Gift Aid rules, the donation will not be a tainted donation.

17.2

Example

An art conservation charity offers donors who make donations of £5,000 or more a special membership package called ‘Gold membership’. This entitles members to a benefits package including free admission to permanent exhibitions, private viewings, the right to attend an annual ‘Curator’s reception’, which includes refreshments, an opportunity to meet other major supporters and hear a prominent expert delivering a talk about current art conservation issues, plus 12 monthly newsletters.

The charity has agreed with HMRC that the value of the benefits package is £250. This is within the Gift Aid benefit rules.

17.3

The receipt of a benefits package as a result of making a donation is an arrangement which satisfies ‘Condition A’ the circumstances are such as to suggest the donation would not have been made without the benefits package. The donor is also affected by ‘Condition C’.

However, these packages are designed to incentivise the donor to make a larger donation and ensure that the benefits provided fall within the Gift Aid benefit limits. In this case, the free admission to permanent exhibitions can be disregarded under normal Gift Aid rules. The newsletters are regarded as having negligible value.

Private viewings and the right to attend the reception is within the Gift Aid benefit limits. Consequently, the value of the benefits package is ignored as financial assistance for the purposes of the tainted charity donations rules because the benefits are within the permitted limits provided for within the Gift Aid rules. No financial assistance is therefore received by a linked person, and Condition B is not met.

18. Connected charities

18.1

For the purposes of the tainted charity donations rules, a charity is connected with another charity where they’re connected in a matter relating to the structure, administration or control of either charity. This is to ensure arrangements that seek to separate the making of a donation and obtaining financial assistance by involving a number of connected charities in the arrangements are captured.

19. Connected persons

19.1

The tainted charity donations rules apply to persons connected to the donor as well as to the donor. So, if arrangements that would not have been entered into independently of a donation are entered into and financial assistance is provided to a person connected to the donor the rules still apply.

19.2

For the purposes of the tainted charity donations rule the normal Taxes Acts definition of connected person (section 993 ITA 2007 and section 1122 CTA 2010) is extended as follows:

• a beneficiary of a settlement is connected with the trustees and settlor of the settlement
• a man and woman living together as husband and wife are treated for this purpose as if they were husband and wife
• 2 people living together as if they were civil partners are treated as if they were civil partners
• the term ‘close company’ is taken to include companies that would be close companies if they were resident in the UK