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Until the early 20th century, the practice of ‘donating’ money to the Crown or the Government in return for titles, lands or political favours was relatively widespread. The advent of modern democracy soon all but eliminated these practices, but we still find that individuals and companies are prepared to give away large sums of money to support the political causes in which they believe. The Political Parties, Elections and Referendum Act 2000, which came into force in February, introduced wide-ranging regulation of the manner in which political donations can be made.Last year, the hundreds of millions of dollars spent in the US Presidential Election were all raised from private donors. In the UK, as recently as January, large donations were given to both main political parties and the General Election has just seen tens of millions of pounds spent by the parties, again mostly from private donors. Whether or not those donors succeed in furthering their political aims, they may well obtain valuable tax breaks. Political funding is, in fact, a highly effective manner of reducing your personal tax burden.Making tax efficient political donationsAll donations to qualifying political parties are exempt from inheritance tax. All political parties with at least two seats in the House of Commons are qualifying political parties. Any other political party that polled at least 150,000 votes at the last election while winning one seat is also treated as qualifying. Additionally, gifts of shares or other assets given to a political party can qualify for capital gains tax holdover relief. Opposition parties sought to introduce income tax relief for donations under £500, but this was resisted by the Government during the act’s passage through parliament.

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