RECENT CHANGES TO UK tax legislation have transformed the rules surrounding charitable donations, particularly impacting those involving organisations outside the UK. Previously, individuals and companies making donations to certain non-UK charities could benefit from UK tax reliefs such as Gift Aid, capital gains tax relief, and inheritance tax exemptions. However, these changes now significantly restrict the scope of eligible organisations.

In today’s Shipleys Tax note, we look at the changes to UK tax relief rules for charitable donations and how they impact individuals and businesses. We’ll cover in general the updated rules, explore planning options, and provide practical strategies to ensure your charitable contributions remain impactful and compliant.

How UK Charity Tax Relief Used to Work for International Donations

Before the changes, charitable donations to organisations based in the European Union (EU) or European Economic Area (EEA) were treated similarly to those made to UK-based charities. This meant that:

1. Gift Aid: UK taxpayers could claim Gift Aid on donations to eligible EU/EEA charities, increasing the value of their contributions by 25%.
2. Capital Gains Tax Relief: Donations of assets, such as shares or property, to non-UK charities could qualify for relief under the “nil gain, nil loss” principle.
3. Inheritance Tax (IHT) Relief: Bequests to non-UK charities in wills were exempt from inheritance tax, ensuring that the full amount benefited the intended cause.

This favourable treatment recognised the interconnected nature of charitable work across borders, encouraging UK taxpayers to support causes globally while enjoying tax benefits.

Before the changes, charitable donations to organisations based in the EU/EEA were treated similarly to those made to UK-based charities..

New 2024 Rules: UK Charity Tax Relief Now Limited

From April 2024, tax reliefs are available only for donations to charities that meet the tightened definition of a “charity” under UK law. This includes:

1. Geographical Scope: The organisation must fall under the jurisdiction of the High Court in England and Wales, Northern Ireland, or the Court of Session in Scotland.
2. CASCs: Community Amateur Sports Clubs must operate within the UK and provide facilities for eligible sports exclusively in the UK.
3. EU/EEA Charities: While there was a transitional period for non-UK charities to adjust, this ended on 5 April 2024.

Donations to Non-EU/EEA Charities

Donations made by UK individuals or companies to charities outside the EU/EEA, such as those in Pakistan, Bangladesh, or the Middle East, generally do not qualify for UK tax reliefs. Under UK law:

1. No Gift Aid or Tax Relief: Direct donations to charities in these regions are not eligible for Gift Aid, capital gains tax relief, or inheritance tax exemptions.

2. The Alternative: To benefit from UK tax reliefs, donations must be channelled through a UK-registered charity or donor-advised fund (DAF). These entities can distribute funds to overseas causes while ensuring compliance with UK tax rules.

Case Study:
James, a UK taxpayer, wishes to donate £15,000 to a health initiative in Bangladesh. If he donates directly to the Bangladeshi charity, he receives no tax relief. However, by donating to a UK-registered DAF, which then supports the same initiative, James can claim Gift Aid, increasing his donation’s value to £18,750, and receive income tax relief on the amount contributed.

This approach ensures his support remains impactful while benefiting from UK tax efficiencies.

How Can Donors Plan for the New Rules?

1. Review Existing Donations:
   • Check whether the organisations you support still qualify for tax reliefs.
   • If not, explore UK-based alternatives or partner organisations that achieve similar objectives.

2. Utilise Donor-Advised Funds (DAFs):
   • A DAF is a flexible giving vehicle that allows donors to make a contribution, claim tax relief immediately, and distribute funds to eligible charities over time.
   • Example: Emma sets up a DAF with £50,000. She claims tax relief on the contribution and later supports approved UK charities in education and healthcare.

Donations made by UK individuals or companies to charities outside the EU/EEA, such as those in Pakistan, Bangladesh, or the Middle East, generally do not qualify for UK tax reliefs

3. Establish a UK-Based Charity or Trust:
   • For individuals supporting overseas causes, setting up a UK-based charity that funds projects abroad can ensure compliance with UK rules while retaining tax benefits.
   • Example: Sarah establishes a UK charitable trust to support educational initiatives in India, maintaining tax efficiency for her donations.

4. Diversify Donation Methods:
   • Beyond cash donations, consider giving assets like shares, property, or other valuable items. This may also help reduce other tax liabilities.
   • Example: Tom donates a portfolio of shares worth £30,000 to a UK charity, avoiding capital gains tax and receiving income tax relief.

The Bigger Picture

The changes reflect the UK government’s focus on aligning tax reliefs with domestic charitable activities. While they may limit support for international causes, proper planning ensures that donors can still achieve their philanthropic goals.

With the new restrictions on which charities qualify for tax relief, including limitations on donations to EU/EEA and global organisations, it’s more important than ever to understand how to maximise your charity giving while staying tax-efficient. So if you regularly donate to non-UK organisations, it is essential to reassess your contributions, understand the impact of the new rules, and seek professional advice to optimise your giving strategy. This will help ensure your donations remain impactful and tax-efficient under the updated rules.

For further assistance or queries, please contact us.

Leeds: 0113 320 9284                  Sheffield: 0114 272 4984

Email: info@shipleystax.com

Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.

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