Date: 27/03/23
EQUITY AND TRUSTS: TUTORIAL 3
Charities: are exempt from paying tax on their income
and capital gains.
If an income tax payer makes a donation to a charity
out of their income, this payment is being made out of
taxed income.
Gifts to charities are also exempt from Inheritance Tax
Establishing a valid trust
Declaration- in order for a trust to be valid, there must
be a declaration which satisfies the three certainties-
certainty of intention, of subject and of object. It must
also comply with the beneficiary principle
Formalities: if the settlor appoints persons other than
themselves to be trustees, they must ensure that the
trust property is correctly transferred to these trustees
Valid charitable trust
Certainty of intention
Certainty of subject
Certainty of object
Beneficiary principle- requires identifiable beneficiaries
who could, if necessary, enforce the trust.
What about the application of the rule against
perpetuities?
The terms of a purpose trust must make it clear that
the trust cannot last more than 21 years, otherwise
the trust is void.
But there are different rules for charities. Due to the
public benefit, they provide, charities can continue
indefinitely.
, So a charitable purpose trust is not rendered void if
there’s nothing in its terms limiting its duration to 21
years.
If someone sets up a trust to use the income from the
trust fund to provide a Christmas party for, say, sick or
disabled children, this would be charitable. It does not
matter that the trust could go on indefinitely. The trust
would be valid.
-Charitable status
-Charitable trust
What is a charitable purpose -
Prior to 2006, there was no statutory definition of a
"charitable purpose". Decisions made as to what was
charitable were based on case law over the years, and
guidance from the Charity Commission.
The traditional, pre-2006 categories of charity were the
relief of poverty, the advancement of education, the
advancement of religion and other purposes of benefit to
the public.
Charities act The Charities Act 2006 provided an initial
statutory definition of charitable purposes. We now have
section 3 of the Charities Act 2011 providing this statutory
definition of charity. Section 3 sets out 13 charitable
purposes. The Act keeps the traditional pre-2006 heads of
charity, but also aims to recognize and reflect modern
charitable giving.
Unless the purpose of the charity is to relieve poverty, if
the class of beneficiaries is defined by a personal
connection to an individual, this “personal nexus” will
prevent the beneficiaries from being regarded as a section
of the public, and the fund cannot have charitable status.
This nexus arises where those benefiting from the purpose
are related to an individual or are linked by contractual
relationship to a particular company.
2
EQUITY AND TRUSTS: TUTORIAL 3
Charities: are exempt from paying tax on their income
and capital gains.
If an income tax payer makes a donation to a charity
out of their income, this payment is being made out of
taxed income.
Gifts to charities are also exempt from Inheritance Tax
Establishing a valid trust
Declaration- in order for a trust to be valid, there must
be a declaration which satisfies the three certainties-
certainty of intention, of subject and of object. It must
also comply with the beneficiary principle
Formalities: if the settlor appoints persons other than
themselves to be trustees, they must ensure that the
trust property is correctly transferred to these trustees
Valid charitable trust
Certainty of intention
Certainty of subject
Certainty of object
Beneficiary principle- requires identifiable beneficiaries
who could, if necessary, enforce the trust.
What about the application of the rule against
perpetuities?
The terms of a purpose trust must make it clear that
the trust cannot last more than 21 years, otherwise
the trust is void.
But there are different rules for charities. Due to the
public benefit, they provide, charities can continue
indefinitely.
, So a charitable purpose trust is not rendered void if
there’s nothing in its terms limiting its duration to 21
years.
If someone sets up a trust to use the income from the
trust fund to provide a Christmas party for, say, sick or
disabled children, this would be charitable. It does not
matter that the trust could go on indefinitely. The trust
would be valid.
-Charitable status
-Charitable trust
What is a charitable purpose -
Prior to 2006, there was no statutory definition of a
"charitable purpose". Decisions made as to what was
charitable were based on case law over the years, and
guidance from the Charity Commission.
The traditional, pre-2006 categories of charity were the
relief of poverty, the advancement of education, the
advancement of religion and other purposes of benefit to
the public.
Charities act The Charities Act 2006 provided an initial
statutory definition of charitable purposes. We now have
section 3 of the Charities Act 2011 providing this statutory
definition of charity. Section 3 sets out 13 charitable
purposes. The Act keeps the traditional pre-2006 heads of
charity, but also aims to recognize and reflect modern
charitable giving.
Unless the purpose of the charity is to relieve poverty, if
the class of beneficiaries is defined by a personal
connection to an individual, this “personal nexus” will
prevent the beneficiaries from being regarded as a section
of the public, and the fund cannot have charitable status.
This nexus arises where those benefiting from the purpose
are related to an individual or are linked by contractual
relationship to a particular company.
2
