Donations to charities and Community Amateur Sports Clubs (CASCs) in the UK are generally exempt from inheritance Tax (IHT) and reliefs for capital gains tax (CGT) and income tax may also be available to taxpayers who make gifts to them.

For over a decade, donations to European Union (EU) and European Economic Area (EEA) charities and CASCs have also enjoyed that same tax-free treatment.

The changes

The Finance Bill 2023 introduces changes which are being enacted as a result of Brexit.  Under these changes the definition of “charity” and “CASC” is now to be restricted to UK charities and UK CASCs.

If an EU or EEA charity has previously asserted its status as a charity for UK charitable reliefs then some transitional relief applies.  Income tax and CGT reliefs will still be available on donations made until 5 April 2024. For IHT purposes, relief is available on donations made until 31 March 2024. For all other charities impacted by the changes (which is likely to be the vast majority of them as we understand that very few asserted their status as a charity in the UK) the changes apply with effect from 15 March 2023.

What should people do?

It is recommended that individuals review their Wills to check whether any gifts are impacted by the changes and to consider whether the removal of the IHT exemption should result in any amendments to ensure their wishes are followed. The removal of IHT relief could result in an unexpected tax charge on death and for specific legacies the burden of that tax charge is likely to sit with the residuary estate. Prior to these changes no tax charge would have been envisaged.

Likewise, planning to make use of the reduced 36% IHT rate (which applies where at least 10% of a person's net estate is left to charity) may be scuppered by these changes. 

If you or your client would like further guidance on the impact of these changes then please contact Ronnie Myers or your usual contact at Burges Salmon.