Charities’ bond-washing probe washes out

The high-profile probe into the use of bond-washing by charities has come to
a limp conclusion after initial investigations concluded that practice by
charities posed minimal risk to tax revenues.

In March, HM Revenue &
announced it had found charities that had ‘overlooked the potential
for liabilities in this area’ and warned the charity sector ‘to be aware of
certain transactions’.

Last week, however, the taxman was forced to admit that investigations into
bond-washing had yielded little.

‘It has become clear that the risk of liability in this area is less than had
been thought. On the basis of the results of our work to date, HMRC is not
proposing to extend this initial exercise any further. So, we will not be
contacting any more charities or investment managers conducting business on
behalf of charities with questions relating to bond-washing,’ HMRC said in a

Bond-washing is a tax dodge that involves selling off a security that is
about to pay a coupon and then buying it back at a lower price in order to
generate a tax-free capital gain. The activity has been blocked by legislation
dating back to the 1950s.

HMRC had earlier suggested that the problem was more widespread. ‘The
longstanding legislation on bond washing does not just apply to charities. It
applies equally to all. There is no “crackdown” on charities in this area, but
charities need to be aware of the tax implications of certain transaction,’ it
said in an statement on its website.

UHY Hacker Young partner Roy Maugham, who had represented a charity
approached by HMRC over bond washing, welcomed the end of the probe.

‘I am very happy with the outcome. HMRC has effectively admitted that its
action was unnecessary. It is just a pity that the whole exercise has chewed
away at time and resources,’ Maugham said.

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