Legal update: Intangible asset transfer and Birmingham City Council land swap

Plus: The proposed Cabinet Office consultation on CIOs

Birmingham City Council
Birmingham City Council

Charities often set up trading companies to raise funds by carrying out non-charitable trading activities. In order to do this, the parent charity will often grant the trading company rights to use the charity's mailing list and logo (which may well be an unregistered trade mark). These transactions must be on arm's-length commercial terms to satisfy the requirements of charity and tax law.

Clause 32 of the Finance (No.2) Bill 2015 will remove corporation tax relief for costs incurred by a company in purchasing goodwill and other intangible assets that are closely related to goodwill, such as mailing lists, unregistered trade marks and licences in respect of such assets.

The clause should not affect payments by a trading company that is a 75 per cent (or more) subsidiary of a charitable company, as an intra-group transfer of an intangible asset is generally tax-neutral (sections 775-776, Corporation Tax Act 2009). But the clause will restrict corporation tax relief on the purchase of intangible assets from related parties for trading companies that are owned by the trustees of a charitable trust or unincorporated association, or by several charities. Charity representative groups argue there is no justification for restricting corporation tax relief for such legitimate business expenses and are seeking to preserve all charity trading companies' entitlement to claim corporation tax relief in these circumstances.

Land swap authorised

The Charity Commission has published a regulatory case report on charity land at Stirchley, Birmingham. The commission gave permission for the charitable land, a disused bowling green held by Birmingham City Council as corporate trustee, to be swapped for land in a nearby park owned by the council.

The report provides a helpful illustration of the circumstances in which the commission may authorise a land swap in order to preserve designated land and the consultation process that trustees are generally expected to carry out when making decisions about the use of that land. It also provides a further reminder to local authorities that are appointed as corporate trustees of charities of the need to separate local authority land from charity land.

Consultation on CIOs

The Cabinet Office expects to launch a consultation within the next three to four months on the draft regulations to enable charitable companies limited by guarantee, community interest companies and charitable industrial and provident societies to convert into charitable incorporated organisations. Such conversions are likely to be phased by income to help the Charity Commission manage the expected levels of demand. The CIO legal form, which allows a limited-liability corporate body specifically designed for charities to be registered with the commission only, was introduced in January 2013.

This column is written by Adrian Pashley, charities editor at Thomson Reuters, Practical Law, on behalf of the CLA

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