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Charity investment

How a charitable investment into an offshore life assurance or capital redemption contract would be taxed in the UK after the Finance Act 2008 changes.


Premiums paid

HMRC practice regards premiums paid by charities on insurance or capital redemption contracts as non­charitable expenditure. This means that tax reliefs and exemptions on their relievable income and gains will be lost at an amount equal to the non­charitable expenditure.


A charity has gross bank interest of £25,000 (which is relievable income) in a chargeable period.

A charity has paid £10,000 premiums on insurance policies (which is a non­charitable expenditure) in the same chargeable period.

Relievable income: £25,000

Less: non charitable expenditure: £10,000

Income on which relief is allowed: £15,000.

Tax relief is disallowed in respect of £10,000 of relievable income.

If the amount of relievable income and gains is less than the amount of non­charitable expenditure, the excess non-charitable expenditure would first be applied to the total income and gains of the charity for that chargeable period and any excess non-charitable expenditure still remaining is then carried back.  

The charitable income and gains for any chargeable period includes the relievable income and gains and all other income and gains regardless of whether they are chargeable to tax such as non-taxable grants and other gifts and legacies received etc.

The chargeable period to which the excess is carried back cannot be more than 6 years before the end of the period in which the non­charitable expenditure is incurred.

If in the example above, the insurance policy premiums were £30,000 there would be an excess non-charitable expenditure of £5,000 (£30,000 - £25,000) and this would be carried back to earlier chargeable periods as required. 

Charitable trusts – chargeable event rules apply

For charitable trusts, the chargeable event gains will form part of trustee’s income for the year of assessment in which the gain occurred. Trustees are liable to pay tax on the gains at the basic rate of tax.

The chargeable period is the tax year ending 5 April. A self-assessment return should be completed for the chargeable period concerned and any tax liability accounted for.

Corporate charity – loan relationship rules apply

For a corporate charity, life assurance and capital redemption contracts are deemed to be loan relationships and an exemption from tax on non­trading profits in respect of loan relationships is available under section 486 Corporation Taxes Act 2010 provided the income is applied for charitable purposes.

The chargeable period is its accounting period. A corporation tax return should be completed for the chargeable period concerned and any tax liability accounted for.

Further information on charities investing into offshore life assurance or capital redemption contracts can be found on this HMRC link.


Last review: April 2020

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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