Business News
Gifts to Charity: Land, Buildings or Shares
If your company gives land, property or qualifying shares to a UK charity, it could be entitled to Corporation Tax relief, even if you sell them to a charity at less than their market value, i.e. a discounted rate.
To qualify your gift to the charity must fall into one of the following categories:
• Shares or securities which are listed on the stock exchange, both in London and overseas
• Shares or securities dealt in on any market in the UK
• Units in an Authorised Unit Trust (AUT)
• Shares in a UK Open-Ended Investment Company
• Holdings in certain foreign collective investment schemes
• A qualifying interest in land.
Unfortunately, your company cannot qualify for Corporation Tax relief for gifts or sales of property, land or shares given to a Community Amateur Sports Club (CASC).
However, gifts or sales to CASCs can qualify for relief from Corporation Tax on capital gains.
Capital Gains
Corporation Tax is normally payable on capital gains made when land, buildings or shares are given away or sold for a profit.
If your company makes a gift of an asset to a charity or Community Amateur Sports Club (CASC), there is no tax to pay on any capital gains. This is because when the gift is made, the transaction is treated as having taken place for an amount that results in no gain or loss for the donor.
What if the charity pays for the asset?
As long as the charity pays your company no more than its original price, i.e. the price you paid for it, then no tax needs to be paid as no gain has been made.
However, if the charity buys the asset for more than your company first paid for it, then tax may have to be paid on the amount of profit made from the sale.
How to give land, buildings or shares to charity
If you want to give shares to a charity, you need to complete a stock transfer form to take the share out of your company’s name into the charity’s name.
If you wish to gain tax relief for the gift you will need to obtain a certificate from the charity confirming the gift that outlines:
• A description of the land or property that has been given or sold
• The date of the disposal
• A statement confirming that the charity has acquired a qualifying interest in the land or property
• A ‘qualifying interest’ means a freehold interest in land or a leasehold interest in that land
You must transfer the whole of your interest in that land or property to the charity, e.g. you cannot give a property to a charity and continue to live in it.
In a situation where the property is owned by more than one person, all of the owners must dispose of their own individual interests in the property to the charity at the same time to qualify for the tax relief benefit.
A charity might ask you to sell the shares or land you are donating on their behalf. In these cases you will need to keep all the evidence pertaining to this agreement before you dispose of the asset.
Working out the tax relief you are entitled to
The way to work out the amount of relief due differs depending on whether your company gives the gift for free or sells it at less than its market value.
Tax relief on a gift
To work out the amount of tax relief for a gift to charity, add up the market value of the gift and any additional costs such as legal fees. Then take away any money or other benefits the company gets for giving the gift to the charity.
Tax relief on a sale at less than market value
To work out the amount of tax relief for when the company sells an asset to a charity as less than its market value, add together the market value of the asset and any associated costs. Then take away the amount you sell the asset for. After that, take away money or other benefits you receive for selling the asset to the charity.
Market Value
The market value is the price that the asset might be expected to sell for in an open market.
If your company is giving or selling land or property you should value it on the date you transfer it to the charity.
It’s likely that you will need to employ a professional advisor to work out the market value of the land or property, you can then add these costs to the market when you work out your tax relief.
There are different rules for working out the market value of shares and securities or other investments. There is also different rules for calculating the relief if the charity has to do something in return for receiving the asset.
Tax advantages for the charity
If your company gives assets like shares or property to a UK charity, there are several tax advantages for the charity:
• It receives the gift at its value on the date the transfer takes place
• It won’t have to pay Stamp Duty on the land or property
• There won’t be Stamp Duty charge on an outright gift of shares
How to claim tax relief
Your company should claim the tax relief in the accounting period during which it made the gift to the charity.
You deduct the amount of the relief from the company’s Corporation Tax profits for the period and include the amount your company is claiming in the ‘Charges Paid’ box on your tax return.
If you have already made a gift or land or property and need to check the value on the date it was given you can contact the Valuation Office Agency (VOA) who can confirm the amount for you.
Records you need to keep
If you give shares, securities, land or building to a charity you will need to retain certain records to show you’re entitled to Corporation tax relief.
1 – Gift of shares
A dated copy of the share transfer document if your company gives or sells shares to a charity.
2 – Gifts of property
If you give land or sells land or property to a charity you will need to get a certificate from the charity showing:
• Description of the land or property being transferred to them
• The date the transfer was made
• Confirmation that the charity has taken ownership of the property
There’s no particular form that the charity is required to use for the certificate. It can draw the document up itself providing it includes all the required details above.
4 – Selling the asset on behalf of the charity
If the charity asks you to sell the gift on its behalf you can still claim tax relief, but will need to keep proper records of the gift and of the agreement between you and the charity.
This should include:
• The charity accepting your gift and requesting you sell it on their behalf
• The charity requesting that your company passes the proceeds from the sale onto them at the same time as sending the transfer documents
• Your company giving either all – or the agreed proportion of – the proceeds of the sale to charity
How long to keep the records for?
You must keep your tax records for at least six years after the end of the accounting period to which they relate. If HM Revenue & Customs makes any enquiries about your company tax return, you will need to keep the records until the enquiries are completed.
