04 October 2019
Could Brexit have an impact on gifts to charity in your Will?
When you pass away, if you make gifts to a UK registered charity under your Will, or indeed during the seven years before you pass away, those gifts may qualify for 100% exemption from inheritance tax.
However, since 2010 it has been possible for this charitable exemption to apply to equivalent charitable organisations within the EU. The effect of this is that it is currently possible for UK tax payers to get tax relief on donations to charities or not-for-profit organisations which have been established in other member states, provided that the European organisations have in fact been given equivalent charitable status by HMRC. It is currently unclear how or whether Brexit will affect charitable giving to EU organisations.
Prior to 2010, charitable tax relief on donations to organisations established in another member state was restricted or denied. However, following the 2010 decision of the European Court of Justice in the case of Persche and Stauffer (where this rule was considered to breach the principle of free movement of capital and freedom of establishment across member states) the law was changed.
The UK government introduced a new definition of “charity” for UK tax purposes and extended it to include charities established in the EU and other specified countries (Norway, Iceland and Lichtenstein). The legislation took effect from 1 April 2010 for Gift Aid and 1 April 2012 for Inheritance Tax and other taxes.
Am I affected?
It remains unclear whether the new wider definition of charity will be changed following Brexit, as the UK would no longer be bound by the decision in Persche and Stauffer. If the wider relief is withdrawn, then UK donors may no longer be able to avail themselves of UK charitable tax reliefs when making donations to EU member state charities during their lifetime or under their Will.
It remains possible for a UK charity to apply its funds to benefit a foreign charity, provided that the UK charity takes such steps as HMRC considers reasonable to ensure that it uses the funds in a way that is charitable under English law. So, a testator wishing to benefit a qualifying foreign charity may wish to investigate the possibility of giving the legacy to a UK charity with suitable foreign connections.