Could you ask a donor to make a loan and then write it off?
If a loan arrangement is conditional on the loan being written off as a donation after three years, this is highly likely to be viewed as a donation from the outset and hence not eligible for SITR.
However, if the lender voluntarily writes off the loan without being obliged to do so, there could be an opportunity for both SITR on the loan and Gift Aid to be claimed by the charity on the write off of the loan. Following recently updated HMRC guidance, Gift Aid can be claimed on loan write-offs as long as suitable documentary evidence is kept.
For example, an investor who is a higher rate taxpayer makes an interest free loan of £100,000 to a charity in April 2022 which expires in April 2025, at which point the investor decides to write off the loan and makes a Gift Aid declaration. The charity will receive a Gift Aid repayment of £25,000 and the investor will receive an income tax repayment of £30,000 under SITR plus a further income tax saving of £25,000 under Gift Aid higher rate relief. In total the charity will receive £125,000 at a cost of only £45,000 to the lender/donor.
However, charities should exercise caution in seeking to discuss this approach with potential investors and are encouraged to seek advice before setting up such an arrangement. If set up without due care, the arrangement could be at risk of losing eligibility for both SITR and Gift Aid.