It is not uncommon for churches undertaking major projects, such as a building purchase, extension or refurbishment, to receive loan finance from church members. But what tax opportunities could these loans offer?
When an individual makes a loan, it will not qualify for any tax relief. However, if the lender subsequently waives some or all of their right to repayment of a loan, HMRC now accept that Gift Aid can be claimed on the capital part of the waiver (the gift is considered to be made at the date of waiver). This is a permanent change following a temporary relief during Covid.
There are, however, conditions as to how this is done, and the charity must still have a valid gift aid declaration from the taxpayer. HMRC will also require a legally enforceable document in order for a loan waiver to qualify for Gift Aid. Given the complexities, Stewardship’s Kevin Russell and colleagues at the Charity Tax Group had worked with HMRC officials to produce updated guidance, including worked examples, to aid charities and donors in complying with HMRC expectations. This guidance was finally approved and issued in February 2024. Charity Tax Group will also shortly be publishing model waiver documentation to further assist charities and their donors.
Taking the thinking a step further, HMRC’s revised view regarding loan waivers can present tax planning opportunities. For example, say an individual A has lent £15,000 to their church, following an inheritance and they are minded to make this into a Gift Aid donation but either do not feel comfortable doing this in one go, or do not have a sufficient tax liability ‘to cover’ the Gift Aid donation all in one go, they could simply waive a part of their loan over a series of tax years as their particular circumstances allow.
Gift Aid relief may also be claimed on other (usually smaller) forms of repayment that are waived. For example, where a charity event is cancelled, and a ticket holder waives their right to repayment of the cost of the ticket. In this case, a lesser form of documentation will be sufficient to evidence the waiver, for example email correspondence or a letter to the taxpayer. Ticket holders have to be made aware of their option to receive a refund.
(Originally published November 2022, updated March 2024 to reflect approval of new HMRC guidance.)
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Lourens du Plessis
Lourens leads our teams who guide and strengthen churches and Christian charities with their governance and finances. Our professional services include independent examinations of charities’ accounts, an award-winning payroll bureau, consultancy and governance advisory services and helping charities get registered with the Charity Commission. He joined Stewardship in 2020 and brings with him a wealth of experience in both the charity and commercial sectors. He’s a member of the Charity Community Advisory Group of the Institute of Chartered Accountants in England and Wales, and regularly interacts with regulators in the sector.
Before joining Stewardship he worked for an international church developing governance and financial stewardship for various ministries. Prior to that Lourens had a senior role at a Big Four firm in the City, advising international investment banks. He is a qualified Chartered Accountant and has a postgraduate degree in Theology.
Lourens grew up in South Africa, but has spent the majority of his working life in London. He is a member of the International Presbyterian Church in Ealing. He is also a trustee of a number of other churches and charities, including a new pregnancy counselling centre, and he’s involved in initiatives to help Christians better integrate their faith and work.
Lourens supports causes which encourage bringing the gospel to people in his neighbourhood and to the ends of the earth, and particularly supporting persecuted Christians around the world.
