Tax on rent received by charity

[B Johnson]

A charity (incorporated as a CIO) has inherited a property with existing rent paying tenants; it's assumed the rent will be classified as non primary purpose income and therefore subject to corporation tax

1. can the charity form a trading subsidiary and transfer the asset into it?
2. can the trading company's acquisition of the asset be financed by a loan between the trading subsidiary and the charity?
3. can the trading subsidiary donate the rental income from the properties to the charity under gift aid to avoid the payment of any tax
4...... or would the subsidiary have to use the income to pay off the loan before it could make a donation under gift aid.

This is a very small charity which has benefited from the one off legacy from a member and it is looking to find the most tax efficient way of acquiring the asset

Many thanks for any guidance you might be able to give

Brian Johnson

[wamstax]

the letting of a property is not trading and any company formed for that purpose would be an Investment Company

[B Johnson]

thank you for your reply wamstax.

My apologies for using the wrong term but the investment will still be receiving rental income which will be subject to corporation tax, so the underlying questions remain the same

1. can the charity form an subsidiary and transfer the asset into it?
2. can the investment company's acquisition of the asset be financed by a loan between the trading subsidiary and the charity?
3. can the investment company subsidiary donate the rental income from the properties to the charity under gift aid to avoid the payment of any tax
4...... or would the subsidiary have to use the income to pay off the loan before it could make a donation under gift aid.

Many thanks for any guidance you might be able to give

Brian Johnson

[AGoodman]

Charities are exempt from tax on rental income: s.485 Corporation Tax Act 2010

https://www.legislation.gov.uk/ukpga/2010/4/section/485

It doesn't matter whether its primary purpose or a pure investment.

[wamstax]

Of course it would require to be used for charitable purposes

[B Johnson]

Many thanks AGoodman and wamstax

The plan is to accumulate rental income over a few years and then use it (and possibly the properties) to build a local museum (the charity is a history society).

the activity would be a charitable purpose.... I trust HMRC doesn't expect us to use the funds for charitable activities in the year the income is received.

Best wishes

Brian

[AGoodman]

No, it doesn't have to be used in the year received.

[B Johnson]

Many thanks again AGoodman.

Much appreciated

BJ