In brief:
- Are all political donations exempt from IHT? The First-tier Tribunal has provided some uncomfortable answers.
- Two well-known exemptions were tested - and both failed on the facts.
- A cautionary tale for prolific political donors.
It is a common misconception that donations to political organisations will automatically attract tax relief. In reality, the relevant tax exemptions are narrow in scope and strictly applied by the courts. The recent decision in Hosking v HMRC illustrates the risks of making donations without first obtaining tax advice.
The case concerned donations by businessman and prolific political donor, Jeremy Hosking, to causes such as the Vote Leave campaign in the Brexit referendum. The donations had a total value of £1,737,236, and HMRC determined that £349,309 was payable in inheritance tax.
Hosking appealed on two grounds:
1. The 'normal expenditure out of income' exemption
First, Hosking claimed that the donations were exempt from inheritance tax because they were made as part of his normal expenditure out of income. This argument was unsuccessful because there was no 'settled pattern of expenditure'. The causes had differing objectives, and the donations were not sufficiently regular.
2. The exemption for donations to political parties
Donations made to political parties are exempt from inheritance tax if, at the last general election preceding the transfers:
- two members of that party were elected to the House of Commons; or
- one member of that party was elected to the House of Commons and at least 150,000 votes were given to candidates who were members of the party.
Hosking failed on this ground on the basis that the relevant donations were to campaign organisations, rather than political parties.
Hosking sought to argue that it would contravene his human rights if this exemption did not apply to his donations – specifically, that it would infringe his right to freedom of expression and breach the prohibition of discrimination in the European Convention on Human Rights.
This argument was dismissed because the tax charge had not deterred Hosking from expressing his opinion, and the exemption was not discriminatory.
Significance of the judgment for political donors
Donors to political causes should seek legal advice before making significant donations. Not only may there be potential tax implications, but donors may also want to consider reporting requirements and whether they wish to appear on a public register of donors.
For queries about the tax exemptions discussed in this article, contact Charlie Sosna, John Skoulding or David Whittaker. The Politics and Law team can be contacted in relation to the wider issues affecting political donors.