HMRC SDLT: SDLTM26030 – Reliefs: Charities relief

Charities Relief Principles

This section of the HMRC internal manual provides guidance on the reliefs available to charities. It outlines the principles and concepts related to tax reliefs for charitable organisations.

• Explains the eligibility criteria for charities to claim tax reliefs.
• Details the types of reliefs available, including Gift Aid and VAT exemptions.
• Provides guidance on the application process for claiming these reliefs.
• Highlights the responsibilities of charities in maintaining compliance.

Charities Relief from Stamp Duty Land Tax

Understanding Charities Relief

Charities and charitable trusts can sometimes benefit from a relief called ‘Charities Relief’ when they engage in land transactions. This relief is important because it helps charities use their funds more effectively to achieve their charitable purposes.

When is Relief Available?

Relief is available under specific circumstances. It applies when a charity or charitable trust holds a significant portion of the land for qualifying charitable purposes. The key points to remember are:

– Defined Portion: The term ‘greater part’ refers to 51% or more of the total value of the land. This means the charity must intend to use more than half of the land for its charitable activities.
– Transaction Exemptions: If a charity meets this requirement, then the entire transaction may be exempt from the Stamp Duty Land Tax (SDLT).

Example of Relief Availability

Here’s a practical example to illustrate this relief:

– Example 1: A charity purchases a plot of land worth £200,000. If they plan to use £120,000 (which is 60% of the value) for their charitable purposes, they qualify for full relief on the stamp duty for the entire purchase.

What Happens When Land is Disposed Of?

It’s essential to understand that if the charity decides to dispose of part of the land or use part of it for purposes other than charitable ones, that could affect their relief eligibility.

– Clawback of Relief: If the charity does not hold onto the greater part of the land for charitable use, a portion of the relief may be taken back, which is known as ‘clawback’.

Example of Clawback Impact

– Example 2: Suppose the same charity from Example 1 decides to sell a section of land worth £50,000, which is used for non-charitable activities. The remaining land they hold for charitable use is now worth £150,000, representing 75% of the original value. However, because they disposed of part of it, the relief may be adjusted, meaning they could owe some tax on that transaction.

Furthermore, ‘disposal’ can also include granting a low-rent lease which means they could face a similar adjustment if that land is not used for charitable aims.

Calculating the Clawback

If a charity needs to calculate how much of the relief should be returned, they can refer to the original value of the land and the proportion that continues to be held for charitable purposes.

– Tax Liability: If the total value of the land was initially £200,000, and the charity sells part of that land and keeps only £150,000 for charitable use, this is how they might determine the appropriate tax liability.

For example, if the charity held on to 75% of the property’s value after the sale, their stamp duty liability might be recalculated based on this new proportion.

Additional Considerations

When claiming this relief, charities must retain proper documentation that outlines their use of the land and the value associated with both the charitable and non-charitable activities. Here are some things to consider:

– Long-Term Use Plans: Charities should have a clear plan for the land to ensure that the majority remains for charitable purposes.
– Property Records: Keeping accurate and detailed property records will aid in any future assessments or queries from HMRC regarding the relief.

Common Misunderstandings

There are a few common misunderstandings about charities relief that can lead to confusion:

– Full Relief Requires Full Use: Some may think that simply holding land guarantees relief. However, holding the greater part for charitable activities is necessary to qualify.
– Impact of Changes: Any changes to how land is used must be reported, as they can affect the relief status.

How to Apply for Charities Relief

To apply for this relief, charities must follow the steps laid out by HMRC. Here’s a simple outline:

1. Determine Eligibility: Ensure that the charity will hold at least 51% of the land for qualifying charitable purposes.
2. Complete the SDLT Return: When making the land transaction, fill out the SDLT return correctly to reflect the charity’s status.
3. Provide Supporting Documents: Include any evidence that shows how the land will be used for charitable purposes. This may consist of business plans, use agreements, or charity aims.
4. Submit to HMRC: Submit the return and any required documentation within the specified timeframe (usually within 14 days of the transaction).

Impact of Non-Compliance

Failing to comply with the rules regarding the charities relief could lead to penalties. If HMRC finds that a charity misrepresented its use of land, they could face a:

– Penalty Fee: This might be a substantial fee based on the amount of tax owed.
– Loss of Relief: Any claims for relief might be denied if not supported by adequate documentation.

Conclusion on Compliance and Accountability

Charities are responsible for ensuring they stay compliant with the HMRC guidelines on this relief. This includes staying aware of their land usage and being proactive about changes that could affect their relief eligibility. Charitable organisations should have a robust system in place for monitoring land usage and financial planning to ensure they can successfully manage their tax obligations.

Remember, managing compliance will enable charities to continue their charitable work while taking advantage of available financial relief opportunities.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM26030 – Reliefs: Charities relief

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