The Charity Tax Group has warned that it will monitor the progress of new legislation to block what the Treasury calls an "artificial, aggressive and offensive" tax avoidance scheme involving gifts of shares to charities.
Stephen Timms, the Financial Secretary to the Treasury, announced on Tuesday that he was making immediate interim changes to existing legislation after learning of the scheme.
Under the scheme, a UK taxpayer can acquire listed shares at significantly below their market price from an offshore company. The shares are then gifted to a charity and the donor claims relief at the higher tax rate of 40 per cent on their market value. The scheme can also work by artificially inflating the value of the shares at the time they are given to charity.
In either case, the charity typically makes less than 1 per cent of the value of the tax relief because the offshore company has an option to buy back the shares after three years for £1.
In a written ministerial statement to Parliament earlier this week, Timms said: "This action will not affect the vast majority of charities and donors who organise their affairs in a straightforward and ordinary way."
Helen Donoghue, director of the CTG, said she supported measures to tackle tax avoidance. But she was concerned the new rules might go too far and penalise charities rather than donors when tax avoidance occurs, as substantial donor legislation had done.
"It is difficult for charities to always know what is a legitimate donation," she said. "At the moment the legislation looks all right, but we will watch it closely."