Aaron Banks attempted to use the European Convention on Human Rights to argue that HMRC was wrong to charge £163,000 in inheritance tax on certain donations he made to UKIP. Putting to one side the irony of a major backer of UKIP and Brexit using the ECHR to obtain a favourable tax position, the case brings up an interesting facet of the exemption from inheritance tax for donations to political parties.
When an individual makes a gift, that gift will be chargeable to inheritance tax unless it benefits from a relief or exemption, for example the gift may fall within an individual's annual exemption of £3,000 or their nil rate band, currently £325,000. There are several well-known exemptions, such as for gifts to spouses or to charities, however gifts to political parties may also benefit from a complete exemption for inheritance tax.
In order for the donor to benefit, the recipient must pass the statutory test for a "qualifying political party". This test is that, at the last general election prior to the donation, the party either had (1) two MPs elected to the House of Commons, or (2) one MP elected and the party received at least 150,000 votes nationally. At the time of the donation the party did indeed have two MPs, but these were both elected in by-elections following the 2010 general election. This means that UKIP did not satisfy the test and therefore the donation failed.
Putting to one side the argument of whether it is correct that a political party should not qualify despite receiving almost 1,000,000 votes at that election, it is not for the First Tier Tribunal to override statute. It is a matter for Parliament to decide whether to update this law and therefore the Tribunal had no option but to side with HMRC.
For what it is worth, based on the election data in 2010 Mr Banks could have benefited from the exemption had he given his donation instead to the SNP, the Green Party, Sinn Fein, the DUP or Plaid Cymru, all of whom satisfied one of the two tests for qualifying political parties despite receiving fewer votes overall than UKIP.
At the relevant time, UKIP had two MPs, but neither had been elected at the 2010 general election, as both had been elected in subsequent by-elections. As the judge pointed out, it didn’t matter that UKIP had polled more votes than parties which had succeeded in having candidates elected. The test was an objective one and it had been failed.