Discussions on the future of Scottish devolution, following the referendum on Scottish independence, are currently taking place through the Commission chaired by Lord Smith of Kelvin (the Smith Commission) and are being keenly watched by charities across the UK. How charity tax reliefs may operate in Scotland will be of particular interest – but what the end result will look like remains uncertain for the time being.
The vote in favour of the Union brought relief to some parts of the charity sector: many research charities felt particularly exposed as there was a strong suggestion from several funders that support for charities located in an independent Scotland would be reduced or withdrawn. Other parts of the charity sector will have been looking to embrace independence and will have shared the disappointment of the 45% of Yes voters.
As the debate has moved on to enhanced devolution, there remain differences of view about what would be best for the sector overall. What we do know is that some things will remain the same.
Charity regulation in Scotland is devolved to the Scottish Parliament and there is no likelihood of major change. We expect that the Office of the Scottish Charity Regulator (OSCR) will continue as at present, although there are moves to amend how OSCR carries out its regulatory functions. Some of the proposed changes include enhanced information made available to the public on Scottish-registered charities via the OSCR website, including copy accounts and lists of charity trustees. There are also proposals for a Serious Incident Reporting regime, along the lines of that in place in England and Wales.
Charity taxation on the other hand is one area where there is a greater certainty of major change ahead. We now know the rates of Land and Buildings Transaction Tax (LBTT), the Scottish replacement of Stamp Duty Land Tax, which will apply from 1st April 2015, and we know how charity relief from LBTT will be structured: this means that charities purchasing property in Scotland will qualify for relief from LBTT provided that the relevant conditions are all met.
We also know the current proposals for Scottish rates of income tax from 2016 and that charity relief including Gift Aid is to remain reserved to Westminster. This will create some anomalies in how Gift Aid recoveries apply to Scots taxpayers and it remains to be seen how complex this will be in practice.
There are key differences between the main political parties on what they would like to see flow from the Smith Commission in terms of devolved taxation. When it comes to legacies to charity, we do not yet know whether Inheritance Tax (IHT) might be devolved to Scotland and if so what rates of tax might apply and how any charitable exemption might operate. We do know that the Scottish National Party would like to have control of IHT devolved to Holyrood, along with wider taxation policy to maximise the opportunity to promote charitable giving. The Liberal Democrats have made a similar representation to the Smith Commission on IHT, whereas the Conservatives and Labour recommend that IHT should remain reserved to Westminster.
It is possible that Holyrood will have further control over tax rates and tax reliefs, including charity tax reliefs, in the foreseeable future. Charities will continue to watch these proposals as they develop.