Income from land and property

A charity is exempt from tax on income arising in respect of rents or other receipts from land or property that it holds for charitable purposes insofar as the income is applied for charitable purposes only. This exemption includes, for example, rental income. The exemption does not generally extend to income derived from additional services such as catering or conferencing activities.

The above exemption applies to income from both UK and overseas property.

If a charity sells land that has been held as a capital asset any gain will normally be a capital gain. In this case, there is a tax exemption, provided the gain is applied to charitable purposes only.

The exemption does not, however, apply to property trading unless that trading activity is in the course of the carrying out of a primary purpose of the charity. A possible way of mitigating any potential tax liability for the charity is to ensure that such an activity is carried out in a wholly-owned trading subsidiary of the charity, with any profits arising being Gift Aided to the charity.

If a charity sells land/buildings and the sale includes a provision for the charity to share in future profits from the development of that land, the profits received will potentially be chargeable to tax.

HMRC’s guidance on income to charities from land can be found under annex i of the charities guidance.

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