Tax exemptions for Charitable trusts in Scotland

April 29, 2022

Introduction

Charitable trusts registered in Scotland are beneficiaries of numerous tax exemptions. For the most part, UK law is applied evenly across Scotland, but there are some rules that apply only north of the border.

Who determines tax exemptions for Scottish charities?

Any Charitable Trust based in Scotland that is recognised by HM Revenue & Customs will automatically qualify for all the standard tax reliefs available to UK charities. Although the Scottish Parliament holds devolved control of tax thresholds and income tax rates in Scotland, these powers do not include direct control over charity tax relief.

Use of property by charitable trusts in Scotland

When it comes to the property used by Scottish charities, the powers to apply non-domestic rates have been devolved to the Scottish Parliament. Non-domestic rates, otherwise referred to as business rates, apply to all property, land or buildings, that are not defined as domestic property or exempt from rates.

If a property is used wholly or mainly for charitable purposes, charities can benefit from 80% mandatory relief on non-domestic rates. Local authorities in Scotland also have the discretionary powers to top this relief up by 20%, allowing Scottish charities to be fully exempt from all non-domestic rates.

With the Land and Buildings Transaction Tax (LBTT), a Scottish-only tax on property purchases, charities enjoy a total exemption when a property is bought and used wholly or mainly for charitable purposes.

Tax benefits for Scottish charity donors

Donations made in Scotland are subject to exactly the same taxation benefits as those made in England and Wales. However, as a result of devolution, the Scottish Parliament now has income tax powers and this has led to varying income tax rates when compared to the rest of the UK.

One effect of this is that Gift Aid relief can differ for charity donors. Before any tax refunds are issued, HM Revenue & Customs ensure that Scottish donors have paid the correct income tax owed according to Scottish rates. As a result, for Scottish donors tax refunds on donations made under the Gift Aid scheme will be adjusted to match the rates of income tax they pay at medium and higher rates.

Income & corporation tax

Charitable trusts in Scotland are exempt from both income tax, corporation tax, capital gains tax and council tax. Although obliged to pay VAT, Scottish charities do not have to pay tax on income and gains as long as it is used for charitable purposes, known technically as ‘charitable expenditure’. These exemptions cover donations, profits from trading, and rental or investment income.