ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice. Change 100: Charitable trusts: approved charitable investments: sections 558, 559, 560 and 1021
This change modernises the list of investments qualifying as approved charitable investments for the purposes of the rules restricting exemptions.
Although the list is based on Part I of Schedule 20 to ICTA (qualifying investments), it does not replicate the approach taken in that Part.
Part I of Schedule 20 defines qualifying investments by specifying certain investments itself, and also by referring to investments falling within Part I, Part II (apart from paragraph 13) or Part III of Schedule 1 to the Trustee Investment Act 1961 (TIA 1961).
For trust law purposes TIA 1961 has been largely superseded by the Trustee Act 2000 (TA 2000). TA 2000 increased significantly the range of investments trustees can invest in, and it would be a significant change in the law to allow any investment in accordance with TA 2000 to be treated as an approved charitable investment. But it would be unhelpful to continue to refer for tax purposes to a Schedule to an Act (TIA 1961) that trustees no longer need to refer to for investment purposes.
So the detail of investments covered by Schedule 1 to TIA 1961 is incorporated in sections 558 and 559 in a more succinct and updated form.
This has been done by referring to the types of investment that a charitable trust can hold on “an approved basis”. So investment in, for example, fixed or variable interest securities issued by any of Her Majesty’s Government, the government of any overseas territory within the Commonwealth and the government of any state within (broadly) the European Union (EU) is reduced to securities issued by the government of any state in the EU and of any other state. This is wider, and so (strictly) is a taxpayer-favourable change. And rather than list the large number of individual entities in whose securities a charitable trust can hold an approved investment, reference is made to the international entities listed in the directive on the taxation of interest payments. Again, this is a taxpayer-favourable change.
This approach tends to broaden the scope of possible investments, but in a way that is in keeping with HMRC practice in relation to claims that an individual investment should be regarded as qualifying, as set out in paragraph 9(1) of Schedule 20.
When it comes to the ability to hold an approved investment in the securities of (broadly) a non-listed company, the anti-avoidance provisions in Part IV of Schedule 1 to TIA 1961 have been largely repeated.
A more detailed analysis of where the approved investments in the source legislation appear in the rewritten sections 558 and 559 is as follows: