What are approved charitable investments under section 558 of the Income Tax Act 2007?

Section 558 lists twelve categories of investment that qualify as approved charitable investments for United Kingdom charitable trusts. These include government securities, common investment and deposit funds, interests in land, bank deposits at commercial rates, unit trusts, certificates of deposit, and investments specifically approved by HMRC on a claim.

Why does it matter whether a charitable trust holds approved charitable investments?

Amounts held in non-approved investments can be treated as non-charitable expenditure under section 543 of the Income Tax Act 2007. This classification can restrict the charity's income tax exemptions. Holding approved charitable investments ensures the trust maintains its full tax-exempt status under United Kingdom law.

Can HMRC approve an investment that does not fall into the eleven listed categories?

Yes. The twelfth category acts as a safety net. A charity can make a claim to HMRC, and an officer of Revenue and Customs may approve the investment provided they are satisfied it was made for the charity's benefit and not for the avoidance of tax. This can include loans made by way of investment.

What conditions must a bank deposit meet to qualify as an approved charitable investment?

A bank deposit qualifies as an approved charitable investment under category nine provided it earns interest at a commercial rate and is not connected to any arrangement under which the bank makes a loan to another person. Deposits with building societies, the National Savings Bank, and authorised mutual credit institutions also qualify.

Income Tax Act 2007 section 558

Approved charitable investments

Section 558 lists the types of investment that count as "approved charitable investments" for the purposes of the rules on non-charitable expenditure by charitable trusts.

Twelve categories of approved investment are specified, ranging from government securities and common investment or deposit funds to interests in land, bank deposits, unit trusts and certificates of deposit.
Common investment funds and common deposit funds established under the various Charities Acts (including Northern Ireland) qualify, as do similar funds set up exclusively for charities by statute.
Bank and building society deposits qualify provided they earn a commercial rate of interest and are not linked to arrangements under which the bank lends to another person.
Where an investment does not fall into any of the listed categories, HMRC may still approve it on a claim, provided they are satisfied it is made for the charity's benefit and not for the avoidance of tax.

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