It is known that some prominent individuals who made campaign donations during the EU referendum have received letters from HMRC inviting them to pay IHT on their gifts.
But are these demands correct? The simple answer is ‘possibly’.
Gifts made by individuals during their lifetime are subject to IHT at 20% unless a specific exemption applies. Outright gifts to individuals would qualify as potentially exempt transfers, and it is that relief on which many individuals rely to make gifts without incurring an immediate charge to IHT. But the referendum donations were not made to individuals, so that relief is not available.
Normal gifts out of income may provide a further defence against a tax charge on a chargeable lifetime transfer (CLT). To qualify, a gift must be normal expenditure of the transferor, be made out of income and leave the transferor with sufficient income to maintain his or her usual standard of living. Those donors who wish to claim that the donations were normal gifts out of income will need to provide evidence to support that claim.
Gifts to political parties are exempt provided certain conditions are met. HMRC does not consider pro- or anti-Brexit campaigns to meet these conditions: the donations are therefore CLTs taxable at the prevailing IHT rate, currently 20%, subject to any nil rate band being available for set off.
On the face of it, HMRC is quite right to consider the IHT liability on these gifts. Whether or not the individuals ought to have been aware that their donations would incur a tax liability is a moot point. But it seems the demands have come as a surprise to some. This has led to prominent ‘Leave’ campaigners calling for an amendment to the Finance Bill to extend the tax exemption for political parties to cover referendum campaigns and to back-date the extension such that the EU referendum is covered.
While this would offer a ‘simple’ fix to the problem currently faced by the individuals concerned, the political ramifications could be huge. We may well see this tested through the courts instead.
It is known that some prominent individuals who made campaign donations during the EU referendum have received letters from HMRC inviting them to pay IHT on their gifts.
But are these demands correct? The simple answer is ‘possibly’.
Gifts made by individuals during their lifetime are subject to IHT at 20% unless a specific exemption applies. Outright gifts to individuals would qualify as potentially exempt transfers, and it is that relief on which many individuals rely to make gifts without incurring an immediate charge to IHT. But the referendum donations were not made to individuals, so that relief is not available.
Normal gifts out of income may provide a further defence against a tax charge on a chargeable lifetime transfer (CLT). To qualify, a gift must be normal expenditure of the transferor, be made out of income and leave the transferor with sufficient income to maintain his or her usual standard of living. Those donors who wish to claim that the donations were normal gifts out of income will need to provide evidence to support that claim.
Gifts to political parties are exempt provided certain conditions are met. HMRC does not consider pro- or anti-Brexit campaigns to meet these conditions: the donations are therefore CLTs taxable at the prevailing IHT rate, currently 20%, subject to any nil rate band being available for set off.
On the face of it, HMRC is quite right to consider the IHT liability on these gifts. Whether or not the individuals ought to have been aware that their donations would incur a tax liability is a moot point. But it seems the demands have come as a surprise to some. This has led to prominent ‘Leave’ campaigners calling for an amendment to the Finance Bill to extend the tax exemption for political parties to cover referendum campaigns and to back-date the extension such that the EU referendum is covered.
While this would offer a ‘simple’ fix to the problem currently faced by the individuals concerned, the political ramifications could be huge. We may well see this tested through the courts instead.
