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Income tax on gift received from benefactor

Client receives money from someone to support him in his sporting activity

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There are two parts to my question.  Firstly, I have a client that received a substantial sum of money from a wealthy benefactor in the 2017/18 tax year to support them as a competing winter sportsman. There is no connection between the benefactor and my client other than  the benefactor having an interest in my clients sporting activity.  The money was given with no 'strings attached' and my client was not required to do anything in return for the individual.  My initial thought was that the money was some form of sponsorship but given my client has to do absolutley nothing to promote the benefactor or give any of his time in return I am slowley coming to the conclusion that this income may not be taxable in my clients hands?

The second part of the question is that my client has now retired from their winter sport and has moved into a coaching capacity.  He is coaching at an elite level.  The same benefactor has now committed to pay my client direct a significant sum for 2 years for him to use that money as he sees fit to support elite athletes he is coaching or invovled with.  This money will be used to pay indivduals that support the elite athletes for their services as well as my client taking an amount to cover the services they provide to the athletes.  The athletes will not be receiving any of the money.  Once again the benefactor wants nothing in return and we have a email from the benefactor referring to the commitment to pay this money as a gift.  My question is similar to the first part, is income tax payable by the receipients of this money that my client pays to them?  My client will decide who gets the money and how much they get paid form the sum.  

I haven't addressed the Inheritance Tax issues as it is very likely that the amount given by the benefactor is out of normal income.  The benefactor is extremely wealthy!

Any help would be much appreciated.

Steve Marsland

 

Replies (10)

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By Trannysister
09th Aug 2019 17:00

Don't look a gift horse in the mouth. There's nothing to suggest that it's taxable.

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By Tax Dragon
09th Aug 2019 18:03

a) Whom are you advising?
b) Where did you get your information? H(ow h)ave you confirmed it?

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By steve marsland
09th Aug 2019 18:27

Reply to Tax Dragon

The benefactor is not my client. My client was the sportsman initially and is now the coach.

In the second part I am interested to know what the thoughts are with regard to the money retained by my client from this gift for the coaching services he provides to the elite athletes and also the tax position in relation to the money he distributes to the others from the original gift? In effect he is just passing on that gifted money, although the benefactor has stated that it should be used amongst a pool of named people, but hasn't stipulated who gets what. His confirmation email to my client stipulates that he sees this money as a gift.

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Replying to steve marsland:
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By Tax Dragon
09th Aug 2019 19:52

HMRC would likely take the view that the gifts are in respect of a taxable profession or business and form part of the profit of that profession or business. HMRC would likely expect to see the profit taxed as such.

I believe there's case law on this sort of thing. It's Friday night and I'm off out. But have a look in BIM. I think the search would be "voluntary receipts" or similar.

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Replying to Tax Dragon:
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By AndyC555
12th Aug 2019 13:10

Yep. BIM 41800 et seq.

"...if the character in the recipient’s hands is that of a payment made in order that the money may be used in the recipient’s business, to supplement trading or other business receipts and to enable the recipient to carry on business, or otherwise to preserve and maintain trading stability and solvency, then it will be a taxable trading receipt (Smart v Lincolnshire Sugar Co Ltd [1937] 20TC643 at 670; British Commonwealth International Newsfilm Agency Ltd v Mahany [1962] 40TC550 at 578 and 582);" BIM41810

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By Tax Dragon
09th Aug 2019 19:53

Why did you mention IHT?

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By itp33asso
13th Aug 2019 11:29

Can you effect a speecy introduction between me and the benefactor please?!

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Replying to itp33asso:
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By itp33asso
13th Aug 2019 11:30

....a SPEEDY introduction...

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By carnmores
16th Aug 2019 07:46

AndyC555 my opinion is that HMRC has interpreted these cases more widely than they should have, how unusual is that!
'Benefactors' come in all shapes and sizes and it would be interesting to hear more about the relationship and what if anything was written down. i presume that if it is held to be a gift the the IHT considerations need to be noted.
Does the benefactor make other 'gifts' to similar people?

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Replying to carnmores:
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By steve marsland
20th Aug 2019 17:25

Carnmores. I am advised that the benefactor has made gifts to other people although they have been made through his commercial organisation. The benefactors previous company also supported my client prior to him retiring from racing and at that time my client never had to do anything in return. Certainly at the time my client was racing I would have said it would have been treated as a hobby and not a trade and given he had to do nothing in return for the payment the examples that HMRC give at BIM50606 example 2 would seem to indicate that those payments would not have been subject to tax. The gift my client has now received was to support him and others coaching elite athletes. My client was allowed to attend the winter olympics in a coaching capacity by the sports governing body but only on the basis that he covered his entire costs, to which a tranche of this money was used. There is a surplus left and it is the tax treatment of this surplus that we are trying to work out whether it is taxable or not?

Incidentally, my client decides who gets what monies out of the gift and how much he keeps for himself as the benefactor has not stipulated how the money is split and has confirmed that he sees it as a gift, albeit to be used for a specific purposes in coaching elite athletes in a particular sport. Still troubled!!!

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