IEIM400798 - Investment Entity: Charities: Examples

• A is a UK resident charitable trust, over the last 3 years its average income was 40% from financial investments, and 60% from legacies and grants.  A’s financial assets are managed by a discretionary fund manager, which is a bank, and so a Financial Institution.  A is not within the definition of Investment Entity and so not a Financial Institution as less than 50% of its income is from financial investments. A is not required to report under the CRS.

 

• B is a UK resident charitable trust, over the last 3 years its average income was 80% from investing in financial assets and 20% from donations and legacies.  B’s financial assets are not managed by a fund manager, but by the individuals who are trustees of the trust.  B is not an Investment Entity and so not a Financial Institution, it is not required to report under the CRS.

 

• C is a UK resident charitable trust that is an Investment Entity and therefore a Financial Institution.  Its charitable objectives state that funds are to be used for the benefit of a specific individual D. As D is a beneficiary of the charity they have an equity interest in the trust, which is a financial account under the CRS.  The trust must carry out due diligence checks to establish the country where D is tax resident and if that is outside the UK, and in a country that has adopted the CRS, report the interest to HMRC annually.

 

• E is a UK resident charitable trust that is a Financial Institution, its objectives state that funds are to be used to benefit clean water projects in Sudan.  This is a class of discretionary beneficiary, so E is not required to report a beneficiary until a payment is made.  In year 1 E makes grants to projects in Sudan through another UK charity, and through a Sudanese charity.  Due diligence must be carried out on each entity that payment is made to.  The UK charity is resident for tax purposes in the UK so the payment is not reported.  The Sudanese charity is a Non-Financial Entity (NFE) resident for tax in Sudan. As Sudan has not adopted CRS the payment is not reported.

 

• In year 2 E makes a grant to a charity working in Sudan, due diligence checks establish that it is resident for tax in France and it is a Non-Financial Entity (NFE).  France has adopted the CRS so the payment is reportable in year 2.  As the entity is a charity it is an active NFE, so E is only required to report on the entity, there is no requirement to look through the entity and identify its controlling persons.

 

• Charitable trust F is a Financial Institution, it makes small grants to individuals with limited access to traditional banking.  F carries out due diligence processes to establish the tax residence of individuals receiving grants by asking them to tick and sign a form, or give verbal confirmation of their residence which can be recorded and certified by the person making the payment. As the individuals are all UK benefits claimants no further checks are required to confirm the reasonableness of the self-certifications, they are reasonable based on the information available.