The decision to make a significant political donation is rarely straightforward. Beyond the reputational and regulatory considerations, donors should be alive to the potential inheritance tax consequences of transferring substantial sums to political causes. It is a common misconception that donations to political organisations will automatically attract tax relief, when in reality the available inheritance tax exemptions are narrow in scope and strictly applied by the courts.
In order to qualify for tax relief under section 24 of the Inheritance Tax Act 1984, donations must be made to political parties that meet the following criteria:
At the last general election preceding the transfers of value:
- 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 not less than 150,000 votes were given to candidates who were members of that party.
Donors should be aware of these criteria given the growing number of fledgling political parties which, although ostensibly popular and likely to gain support, may not have the established voting history to qualify (for example, Reform UK only began to meet the criteria as recently as 2025).
Jeremy Hosking's donations and HMRC's determination
The recent decision by the First-Tier Tribunal (Tax Chamber) in Hosking v HMRC illustrates the dangers of proceeding without proper tax advice, and serves as a timely warning to those who may be contemplating significant political donations in an era of heightened political activity and the rise of new political movements.
The case concerns donations made by businessman and political donor, Jeremy Hosking, to various causes including the Vote Leave campaign in the Brexit referendum. The donations had a total value of £1,737,236 and the determination issued by HMRC charged £349,309 in inheritance tax on the amount.
The tax exemptions cited in Hosking's appeal
Hosking appealed the determination on two distinct grounds.
First, he claimed that the donations were exempt from inheritance tax because they were made as part of his normal expenditure out of income. In the circumstances, this exemption could only apply if there was a 'settled pattern of expenditure' by Hosking over a period of time.
In the alternative, Hosking sought to rely on the inheritance tax exemption for donations to political parties. His donations did not strictly qualify for this exemption, since his donations were made to campaigning organisations (and not political parties). Nevertheless, he argued that if the exemption did not apply to his donations, it contravened his right to freedom of expression and the prohibition of discrimination contained within the European Convention on Human Rights. His argument was that the exemption should be read so that it would also apply to his donations.
The Tribunal's decision
It was decided that the exemption relating to normal expenditure out of income did not apply to Hosking's donations. The Tribunal could not identify a 'settled pattern of expenditure', since the recipients had differing objectives and, even where a series of donations was made to the Leave campaign, these were not sufficiently regular. The Tribunal considered several factors to determine this, such as the amounts of the donations and their frequency.
The Tribunal also dismissed Hosking's argument that the 'political donations' exemption should apply to his donations. Hosking’s right to freedom of expression was not infringed because the tax charge had not deterred him from expressing his opinion. There was also no discrimination against Hosking for his political beliefs, because the exemption put him in the same position as other donors with other political opinions. The Tribunal confirmed that the exemption is intended to apply only to donations to political parties with a minimum level of representation in the UK Parliament, and so it could not apply to Hosking's donations.
Significance of the judgment for political donors
In short, donors to political causes (whether political parties, campaigns or otherwise) should seek legal and tax advice before making significant donations. Not only may there be potential tax implications, but donors may also want to consider any reporting requirements and whether they wish to appear on a public register of donors.
Donors should be particularly careful to ensure that, if their donation is in furtherance of a specific political cause or campaign, they check whether the entity to which the donation is being made is a political party. Two of the donations made by Mr Hosking (which did not qualify for tax relief) were to Labour Leave Limited. This was a campaign group for Labour Party supporters who supported Brexit, and not a legal entity equivalent to the Labour Party for tax relief purposes.
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.