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HMRC internal manual

Capital Gains Manual

Gifts: Income/Corporation Tax Relief for Gifts of Shares to Charities

TCGA92/S257 (2A)

ICTA88/S587B introduced new Income Tax and Corporation Tax reliefs for gifts and other non-arm’s length disposals of certain assets to charity with effect from 6 April 2000 for individuals and 1 April 2000 for companies. The relief for Income Tax has been rewritten as Chapter 3 Part 8 of ITA 2007. A detailed explanation with worked examples is provided on the HMRC website. A gift may qualify for both the Capital Gains Tax relief and the Income/Corporation Tax relief, provided the conditions for both reliefs are fulfilled.

The Income/Corporation Tax relief is significantly narrower. In particular:

  • Only certain assets qualify, land, shares or securities listed or dealt in on a recognised stock exchange, units in authorised unit trusts and certain offshore funds, and shares in open ended investment companies.
  • The recipient must be either a charity or within the list in ICTA88/S507. The other bodies listed in Schedule 3 IHTA 1984, see CG66620, do not qualify.

If the donor is eligible for Income/Corporation Tax relief TCGA92/S257(2A) to (2C) reduces the charity’s acquisition cost by the amount of the relief. There is no requirement that the relief is actually given. If the available Income/Corporation Tax relief is greater than the charity’s acquisition cost that cost is reduced to nil. This is likely to be the case if the assets are gifted. See example B.

Example A

A owns shares in a quoted company which she acquired at a cost of £18,000. She sells the shares to a charity for £30,000 when they are worth £50,000 incurring £50 dealing costs. A can claim Income Tax relief of £20,050 (£50,000 + £50 - £30,000).

For Capital Gains Tax purposes A is treated as disposing of the shares for a consideration of £30,000 giving her a gain of £11,950 (£30,000 (£18,000 + £50)). The charity’s acquisition cost of £30,000 is reduced by the amount of the income tax relief, £20,050, giving it an acquisition cost of £9,950.

Example B

Instead of selling the shares at undervalue A gifts the shares incurring dealing costs of £50. As an expression of its gratitude the charity gives A tickets to an event worth £500. A can claim Income Tax relief of £49,550 (£50,000 + £50 - £500). For Capital Gains Tax purposes A is treated as disposing of the shares for no gain/no loss (£18,050). Normally this would also be the charity’s acquisition cost but this is reduced to nil because of the Income Tax relief £49,550.