Charities will no longer be at risk of being penalised under legislation governing tax avoidance by substantial donors, according to new rules stipulated in the draft finance bill.
The current legislation was designed to ensure that charity tax breaks were not used for tax avoidance. It states that charities are liable for taxation under the legislation if they make payments to donors who give £25,000 or more in a single year, or to any person or business associated with that donor.
However, the draft legislation, published by the Treasury yesterday, would move the liability to the donor and create a "purpose test", which would ensure only donors who intend to gain from their donation to charity were penalised.
Kevin Russell, technical director of Stewardship, which donates money on behalf of more than 33,000 people and lobbied for the law to be changed, said that he was "extremely happy" with the announcement.
However, he said that he would welcome a public consultation and straightforward guidance on the new rules, particularly to ensure that major donors were not frightened off, but added that he would need to take a "more detailed look" at the draft bill.