21 March 2019 - Article
A charity which reclaimed £155,213 on a donation through the Gift Aid scheme has been ordered to reimburse HMRC. The Tax Tribunal found that the donors, a brother and sister, were not entitled to claim the income tax relief on their donation: Ronald Michael Harris v The Commissioners for Her Majesty’s Revenue and Customs  UKFTT 385 (TC).
Ronald Harris and Irene Fine were left the residue of their mother’s estate, the net worth of which had been valued at £4,170,180. They decided to vary their mother’s will so that it took effect as if there had been a legacy of £500,000 to their family’s charitable trust (the ‘Charity’). As a legacy to a charitable organisation, it was exempt from inheritance tax.
The children, who were also executors of the estate, then paid the £500,000 to the Charity and treated the gift as eligible under Gift Aid for their own personal income tax purposes. The Charity submitted a Gift Aid claim on the donation and HMRC accordingly paid £155,213 to the Charity.
Subsequently, HMRC launched an enquiry and issued an assessment to recover the repayment made to the Charity. Ronald Harris, in his capacity as trustee for the Charity, appealed against this assessment.
In order for a donor to qualify for Gift Aid relief, (s)he must meet the conditions in the legislation, one of which is that neither the donor nor any other person connected to him, subject to de minimus amounts, ‘receives a benefit in consequence of making the gift’.
The Tribunal concluded that the children had received a benefit in consequence of making the gift. By re-directing the £500,000 to the Charity it did not bear the inheritance tax liability that would, but for the deed of variation, have arisen.
Accordingly, the Tribunal dismissed the Charity trustee’s appeal.
In doing so, the Tribunal – through different reasoning – reached the same conclusion as the Special Commissioner in the case of St Dunstan’s v Major (Inspector of Taxes)  STC (SCD) 212, in which it was held that the meaning of ‘benefit’ in the legislation was not confined to benefits provided by the charity itself. In that case, the beneficiary had varied his mother’s will so that it took effect as if his mother had left a legacy of £20,000 to St Dunstan’s, a registered charity.