European threat to gift aid system

Finance | 1 Sep 2006

Charities have been warned that the present gift aid system could be ended following threats from Brussels. Britain could be taken to the European Court of Justice unless it offers tax relief on donations to charities based elsewhere in the European Union, according to the bloc's executive arm.

The European Commission gave Britain a final warning because the current rules discriminate against charities located in other member states and may refer the matter to the European Court of Justice. "Gifts to bona fide charities in other member states should get the same tax treatment as gifts made to domestic charities," EU tax commissioner Laszlo Kovacs said in a statement.

The discrimination breaks EU rules on the free movement of capital, persons and establishment as foreign charities are forced to set up branches in Britain to benefit from the tax relief on donations, the Commission said.

George Bull, head of tax at Baker Tilly, warned that if the UK Government was forced to change the rules, it could end the current unique system enjoyed by UK charities where gift aid donations from taxpaying individuals are deemed to be net of basic rate income tax. Bull said: "Overseas charities could not be easily monitored by UK tax authorities if the Treasury was obliged to pass UK taxes out to them."

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