The UK Budget and donor benefit rules for charities

Emily Deane TEPThree years ago, the UK government’s Autumn Statement 2014 announced a review of the Gift Aid donor benefit rules with the intention of simplifying them. Following a call for evidence, it launched a consultation on 18 February 2016 setting out a range of options.

The responses helped develop specific proposals for reform, which were set out in a second consultation that ended on 3 February 2017. We have been informed that a summary of responses to the second consultation will be published on 1 December 2017.

This week the government announced that it would replace the current three-tier thresholds with two tiers. Under this reform, donors will be no worse off in terms of the value of benefits that charities can offer them, as the new limits will be, for every eligible donation, at least as generous as the current limit.

Current system

The current donor benefit limits (the relevant value test) is a set of monetary thresholds that determines the value of benefits that charities may give to donors as a consequence of a donation and still claim Gift Aid on that donation. These are:

• For donations up to £100, the value of the benefit can equate to a total of 25% of the donation.
• For donations between £100 and £1,000, the value of benefits is capped at £25.
• For donations over £1,000, the value of the benefit can equate to a total of 5% of the donation, up to a maximum annual benefit value of £2,500.

New system to be introduced

Under the new limits, the benefit threshold for the first £100 of the donation will remain at 25% of the amount of the donation. For larger donations, charities can offer an additional benefit to donors, up to 5% of the amount of the donation that exceeds £100. Some examples are provided in the table below. The total value of the benefit that a donor can receive remains at £2,500.

Extra statutory concessions

The government also announced that it will bring into legislation the four extra statutory concessions that currently operate in relation to the donor benefit rules.

Time-frame

Legislation to make all the changes will be introduced in Finance Bill 2018-2019 and will come into effect from 6 April 2019. Draft legislation will be published in 2018.

Examples of how the new benefit thresholds will work:

Size of donation (£) Existing relevant value test  – size of donation
determines level of benefit (£)
Planned relevant value test from April 2019 (£)
70 17.50 17.50
100 25 25
400 25 40 (25% of 100 (25) plus 5% of 400-100(15))
1,000 25 70 (25% of 100 (25) plus 5% of 1,000-100(45))
1,500 75 95 (25% of 100 (25) plus 5% of 1,500-100 (70))

STEP will continue to liaise with HMRC’s Charities Tax Team in this connection.

Emily Deane TEP is STEP Technical Counsel

STEP joins industry roundtable for Law Commission Q&A on wills

Emily Deane TEPSTEP was pleased to attend the latest Today’s Thought Focus Roundtable, hosted by Today’s Wills & Probate on 15 November 2017.

Prof Nick Hopkins and Spencer Clarke from the England & Wales Law Commission attended, and gave participants the opportunity to discuss its latest wills consultation.

The consultation paper contains 14 chapters and 64 questions, with varying proposals for reform. The most pertinent issues facing STEP members are the review of testamentary capacity, statutory wills, supported will-making, formalities, electronic wills, the protection of vulnerable testators, and interpretation and rectification provisions.

Key reforms that members welcome are:

• Modernisation of the language to make it more accessible to the public.
• An alignment between the Mental Capacity Act 2005 and the Banks v Goodfellow test.
• Improving the statutory will application process to further protect elderly or frail testators.
• The implementation of supported will-making, provided that accredited individuals are used and the proper safeguards are incorporated.
• Enhanced protection measures for vulnerable testators.

The Commission confirmed that 177 responses have been received in response to the consultation, which concluded on 10 November 2017. More than 30 of these are thought to be from members of the public.

Prof Nick Hopkins commented: ‘This roundtable event, bringing together a diverse group of those involved in the writing of wills, will be very helpful for us in ensuring that our proposals for reform are grounded in the experience of those making a will, and engage with real-life concerns.’

The Law Commission will be analysing the responses in the coming months and will collate them into a report. In the meantime, it anticipates forming small working groups representative of the industry to focus on various areas of the draft legislation. It is hoped that the official report will be released by the end of 2018.

STEP will continue to keep you updated on this area of reform.

Emily Deane TEP is STEP Technical Counsel

Improving HMRC guidance on Gift Aid donor benefits

Emily Deane TEP

STEP has been invited to join an HMRC Working Group which will review the guidance on Gift Aid donor benefits. The Working Group will review the interpretation of the rules that apply to donor benefits within the HMRC guidance covered by Chapters 3.18 to 3.25.

Objectives

Representatives have been selected from the charity sector, HMRC and HMT and the group held its first meeting hosted by HMRC last week. The group has initially identified the need to include the valuation of certain benefits for application of the relevant value test; the meaning of the ‘in consequence’ rule; and the correct application of the split payment rule.

The objective of the working group is not to amend the legislation or policy but simply to clarify and improve the guidance. HMRC has confirmed that proposed changes to the guidance cannot extend, override or supplement any statutory provisions.

HMRC is keen to mitigate the confusion and litigation that can ensue when the guidance is misinterpreted by charities and donors, for example, when gift aid contributions are misunderstood from the donor’s perspective which can lead to HMRC demanding large refunds. The overriding objective of the working group is to enhance the guidance to make it work as efficiently as possible and promote best practice within the sector.

Tell us your views

We would like to invite STEP members to provide examples of how the guidance could be improved in order to clarify interpretation of the existing legislation. You may wish to provide examples of how the guidance can be misinterpreted or, alternatively, mark up the guidance to show suggested changes.

Outcome

Once HMRC has collected the proposed changes from the working group representatives they will refer the guidance to HMRC’s solicitors for review prior to publication. The estimated date for publication is early 2019.

We would very much value your input. Please send your feedback to  policy@step.org by 15 November 2017.

Emily Deane TEP is STEP Technical Counsel