§ Lord Eltonasked Her Majesty's Government:
Whether it is their intention, as can be inferred from Inland Revenue Statement of Practice No. 4/90, to treat charitable covenants containing a clause to protect covenantors from liability to 1778WA continue the covenanted payment if their income falls below a stated level, as falling outside the definition of "a covenanted payment to charity," in Section 660 (3) to the Taxes Act; and if so, what will be the loss of income to charities generally as a result.
§ The Earl of Strathmore and KinghorneIf a deed of covenant in favour of a charity is to be effective for tax purposes, it must be capable of lasting for more than three years, and the covenantor must not be able to revoke it within that time.
The Inland Revenue has received legal advice that a covenant containing a clause allowing a covenantor to discontinue payments if his or her income falls below a certain level is ineffective for tax purposes, because such a clause gives the covenantor the power to revoke the covenant.
Statement of Practice 4/90, which was issued on 20th March 1990, explained the Inland Revenue's understanding of this area of the law. It also made it clear that where the Inland Revenue had already accepted a particular covenant with a clause on these lines as effective for tax purposes, the covenant would continue to be treated as effective until it expired. Prospective donors who are unwilling to commit themselves to regular covenant payments without such a clause may prefer in future to take advantage of the new Gift Aid scheme for substantial single gifts to charity.