Gifts Exempt from IHT

A recent decision confirms that not all “parties” are political parties for the purpose of the IHT exemption in section 24 IHT Act 1984.  It is well known that gifts to charities and political parties are exempt from inheritance tax (IHT). The key is to ensure that the intended recipient is indeed a charity or a political party (both as defined in legislation). Under section 24, only donations to a political party that, at the last election preceding the transfer of value, had at least two MPs or one seat and 150,000 votes will be exempt. The UK Independence Party (UKIP) did not fulfil this condition.

The UK Tax Tribunal (First-tier) has therefore decided that HMRC was within its rights to charge £163,000 of inheritance tax on nearly a million pounds of donations made by campaigner Arron Banks (via his companies) to UKIP before the Brexit referendum in June 2016.

Mr Banks argued that the gifts ought to have been tax-exempt as donations to political parties and that denying the exemption was a breach of his human rights. However, the Tribunal held that UKIP was not a political party under the relevant legislation because its two MPs had not been elected at a general election (Banks v HMRC, 2018 UKFTT 617 TC).
Since we have also mentioned charities, it is interesting to note that a recent report concluded that more than 50% of private “charitable” trusts did not pass the “public benefit” test (necessary for a body to be considered a charity). We will come back to this topic in a future bulletin but this should also be a reminder that, when making a Will, if a legacy is to be left to a charity (especially if it is intended to take advantage of the reduced 36% IHT rate on the rest of the estate), it is essential to ensure that the intended done is in fact a charity for these purposes. Often gifts are made to local clubs and associations or schools and not every one of these will actually be a charity.