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HMRC internal manual

Inheritance Tax Manual

General outline: meaning of ‘charity’ and ‘charitable’

Transfers of value made on or after 1 April 2012

For transfers of value made on or after 1 April 2012, a charity is defined as a body of persons or a trust that;

  • is established for charitable purposes only (IHTM11115)
  • meets the jurisdiction condition (IHTM11116)
  • meets the registration condition (IHTM11117), and
  • meets the management condition (IHTM11118)

On 27 January 2009, the ECJ gave its judgement in the case of Hein Persche v Finanzamt Ludenscheid which determined that member states could not impose a territorial restriction on a charity exemption. Previously, the exemption was restricted to charities established in the UK.

Following this case, in FA2010, the law relating to charity exemption and the definition of ‘charity’ was changed and was extended to include charities established in the EU and other specified countries. The amending legislation which included new conditions that have to be met took effect from 1 April 2010 for Gift Aid and 1 April 2012 for Inheritance Tax and other taxes.

HMRC Charities are responsible for deciding whether a charity meets the new definition and is a qualifying charity. HMRC Charities will also determine which countries are specified for this purpose. For a country to be specified there must be both suitable exchange of information powers and suitable recovery powers with the foreign country.

Eligibility to the exemption is determined at the date of the transfer of value. HMRC Charities administer a non-statutory approvals process so that charities can obtain certainty in advance of receiving a donation. Those charities that are receiving UK tax reliefs at 1 April 2010 will automatically qualify. A list of charities that have gained approval will be available on the HMRC Charities website in due course.

If a charity meets all the conditions it may qualify for the exemption without having formal approval from HMRC Charities. In these cases, you may need to make further checks to establish the charitable status

In general, transfers made to a charity in England and Wales that has been registered with the Charities Commission can be accepted as exempt without enquiry. Similarly, transfers to charities that have been approved by HMRC Charities can be accepted as exempt without enquiry unless there are indications that the status of the charity has changed since the approval was given.

Further detail about the definition of ‘charity’ can be found on the HMRC charities website. External customers can find this guidance at

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Transfers of value made between 27 January 2009 and 1 April 2012

You will need to apply the territorial extension of the charity exemption for transfers of value made between 27 January 2009 and 1 April 2012. These transfers should be dealt with on a case by case basis although a genuine gift to a charity that meets the new definition will usually qualify for the exemption. Any doubtful cases should be referred to Technical.

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Transfers of value made before 27 January 2009

Before 27 January 2009 ‘charity’ and ‘charitable’ were defined by IHTA84/S272 as having the same meaning as in the Income Tax Acts. A charity was defined in the Taxes Act (ICTA88/s.506 (1)) as ‘any body of persons or trust established for charitable purposes only’. Income tax case law applied for IHT. In particular, this meant that

  • the charity had to be ‘established’ in the UK (‘established’ was defined by the Courts in Camille and Henry Dreyfus Foundation v IRC [1956] AC 39) and Gaudiya Mission and Others v Brahmachary and Others [1998] 2 WLR 175 (CA)), and
  • the terms ‘charity’ and ‘charitable’ must have had the same meaning in Scotland as in England (IRC v Glasgow Police Athletic Association [1953] AC 380 and Guild v IRC [1992] 2 WLR 397 [1992] 2 All ER 10), 1992 SLT 438)