§ Mr. Kinnock
asked the Chancellor of the Exchequer if he will list the taxes from which charities are exempt or for which they may claim refunds, and indicate the cost to the Exchequer of each of these concessions at the latest available date.
§ Mr. Robert Sheldon
The following are the main exemptions from taxes or other duties granted to charities.
- (a) Bodies of persons or trusts established for charitable purposes only are, with one qualification, exempt from income tax, corporation tax and capital gains tax provided the income or gains concerned are applied to charitable purposes only. The qualification relates to profits derived by a charity from trading activities; these profits are only exempt from corporation tax or income tax where the trade is exercised in the course of the actual carrying out of a primary purpose of the charity or where the work on the trade is mainly carried out by the beneficiaries of the charity.
- (b)In general there are no provisions for income tax relief to a donor for donations made to charities. However, where an individual executes a deed of covenant binding himself to make annual payments to a charity for a period which may ex ceed six years he can obtain income tax relief, but only at the basic rate, on the amounts so paid; and if a company similarly executes such a deed it can obtain corresponding relief from corporation tax. In practice the donor deducts basic rate income tax from the payments made to the charity and this tax may be retained provided the payer has sufficient income which has been subject to income tax to cover the payment. The charity can recover the tax which has been deducted.
- (c)Transfers of property given to chari ties or to be held in trust for charitable purposes only are exempt from capital transfer tax up to a total of £100,000 if made on or within one year of death and are exempt without limit if made earlier.
- (d) A donor who gives property to a charity is not liable to capital gains tax on the increase in value of that property during the period of his ownership. Where the donor receives a consideration for the asset he will be chargeable only where and to the extent that the considera tion exceeds his acquisition cost.
- (e)Conveyances and transfers of pro perty—land, company shares, etc.—to a charity bear half the normal stamp duty.
- (f) A charity is not liable to development land tax on the realisation of development value from an interest in land held by it on 12th September 1974—or acquired by it since, if continuously in charitable ownership since that date. Where a charity develops for its own use or for its charitable purposes land acquired after 12th September 1974 any development land tax liability arising is deferred until a subsequent disposal or until the land ceases to be used by it or for its charitable purposes.
- (g) Premises occupied by a registered charity and used for charitable purposes, including shops which sell donated goods, qualify for a statutory 50 per cent. relief from local authority rates. In addition, rating authorities may grant further relief up to 100 per cent. at their discretion.
- (h) Charities may benefit from certain specific provisions in VAT law under
72 which relief is allowed by zero rating or by exemption. Examples are the sale of donated goods by certain charities, the export of goods by charities, supplies of services or material for purely charitable purposes such as talking book equipment f]or the blind, medical research equipment donated by charities to hospitals. and the care of the sick in recognised charitable institutions. No reliable estimate can be given of the total amount of VAT relieved under these provisions. Otherwise, charities enjoy no specific privileges under VAT law but comparatively few chanties make taxable supplies in excess of the registrable limit and have to register and account for the tax.
In addition, the Government have proposed, in Clause 48 of the Finance Bill, that charities should be exempted from the national insurance surcharge in respect of their employees.
No reliable estimates of the costs of these concessions are available, since most involve long-standing reliefs, the with drawal of which would have unquantifiable effects. The Inland Revenue made repayments of £85 million, of which about £30 million resulted from covenanted donations, in the year ending 30th June 1976, but this is obviously only part of the total cost. In the case of the NIS exemption, the cost of relief is estimated at £5 million, but this, too, is very approximate.