Restriction of Charitable Reliefs to UK Charities

To support the charitable sector within the UK, the government has introduced changes to the rules governing charitable reliefs. This article outlines the objectives of these policy revisions, the new restrictions and requirements for charities and CASCs, and the impact these changes will have on the sector.

Objectives: The primary objectives of this policy revision are to direct tax reliefs to UK-registered charities and CASCs, enhance transparency and accountability in using tax reliefs, and strengthen the regulatory framework governing charities and CASCs in the UK.

Restrictions and Requirements: The new policy entails the following restrictions and requirements for charities and CASCs:

1. To qualify for tax reliefs, charities and CASCs must be registered with HM Revenue and Customs (HMRC) in the UK.
2. UK-based branches of overseas charities are only eligible for tax relief if registered as separate UK charities.
3. Charities and CASCs must adhere to the reporting and record-keeping requirements of HMRC to maintain their eligibility for tax relief.

Impact on Charities and CASCs: These restrictions will have the following effects on charities and CASCs:

1. UK-based branches of foreign charities must register as separate UK charities to continue receiving tax reliefs.
2. UK charities and CASCs must ensure compliance with the reporting and record-keeping requirements to maintain their eligibility for tax relief.
3. Unregistered charities and CASCs in the UK will be motivated to register and adhere to the requirements to qualify for tax relief.

Implementation and Transition Periods: Beginning on the 1st of April 2023, the government will restrict charitable reliefs to organisations operating within the UK. These changes will apply to charities registered with the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator, and the Charity Commission for Northern Ireland. The revised rules will also cover CASCs registered with HMRC.

The government has established different transition periods for various tax reliefs to facilitate a smooth transition. The transition period for Gift Aid commenced on the 1st of October 2022 and will conclude on the 30th of September 2023. The transition period for business rates relief will begin on the 1st of April 2023 and ending on the 31st of March 2024. For inheritance tax relief, there is no specific transition period. Instead, the new rules will apply to all deaths occurring on or after the 1st of April 2023.

The UK government’s decision to restrict charitable reliefs to UK charities and CASCs reflects its commitment to supporting the domestic charitable sector. These changes will direct tax reliefs to UK-registered organisations, enhance transparency and accountability, and strengthen the regulatory framework governing charities and CASCs. While the new restrictions and requirements may pose challenges for some charities and CASCs, the associated transition periods will allow for a seamless transition and minimise disruptions to the sector. Consult our tax expert for update about UK government’s policy revisions for charitable reliefs, designed to enhance transparency, strengthen regulation, and direct tax benefits to registered charities and CASCs