A Short History of the Charitable Purposes Exemption from Income Tax of 1799

1. A Short History of the Charitable Purposes Exemption from Income Tax of 1799 Presented by Dr John Avery Jones On behalf of Dr Michael Gousmett Christchurch, New Zealand michaelgousmett@clear.net.nz

2. Preamble • Income Tax Act 1842 5 & 6 Vict. c. 35 • Moravians claim for refund of £73 8s 3d • Issue of what was understood by “charitable purposes” • Resolved in1891 by Lord Macnaghten

3. Introduction • Influence of Pemsel continues today • Canterbury Development Corporation v Charities Commission (CDC) • The “spirit and intendment” of 43 Eliz c. 4 [1601] – Young J in CDC • In 1863 Gladstone challenges the charitable purposes exemption from Income Tax

4. Introduction The charities of London respond: “ … the exemption contended for is founded on principles of humanity and policy … it is sanctioned by long useage and by the authority of the most distinguished statesmen. Its withdrawal is required by no State necessity, and is not demanded by the voice of public opinion. It cannot be carried out under the existing Bill without a manifest and cruel inconsistency, and whilst causing a large amount of individual suffering, it will bring an insignificant gain to the national treasury.”

5. Anthony Highmore • 1758/9 – 1829 • Grandson of Joseph Highmore • Author of legal texts and contributor to Gentleman’s Magazine • Pietas Londinensis (1810) • “In the year 1786, I submitted to [the Smallpox Hospital] and other charities, and finally to some members of the administration, a plan for the total exemption of all institutions of charity from taxes, by one general Act; but, notwithstanding many interviews, and a tolerable concurrence in the principle, the reduction of the revenue was an obstacle too powerful to be subdued.”

6. Anthony Highmore 5 December 1798 Highmore writes to Pitt “with the utmost deference” on Pitt’s “new mode of taxation on income.” Highmore made no comment on the effect of Pitt’s proposal on charities. Highmore letter is one of only three written to Pitt on his Duties upon Income Bill and charities.

7. The eighteenth century taxation of charities • Poor’s Rate • Holt CJ: “[a]ll lands within a parish are to be assessed to the Poor’s Rate. Hospital lands are chargeable to the poor as well as others; for no man, by appropriating his lands to an hospital, can discharge or exempt them from taxes to which they were subject before, and throw a great burden upon their neighbours.” • Lord Mansfield: St Luke’s Hospital [for lunatics] “was not chargeable to the parish rates, and that in general no hospital is so.”

8. Pitt’s Duties upon Income Act of 1799 • 1793 and The Napoleonic Wars: “war with France was inevitable.” • The Triple Assessment of 1798 – “a rather cumbrous form of graduated Income Tax.” • Pitt “explored and attempted every source of taxation … he took the desperate measure of trebling the Assessed Taxes .. And when this impost fell short of expectations … he boldly carried through an Income Tax of minute and complicated graduation …”

9. Exemptions and abatements Assessed Taxes Act 1798: “ that if any person shall … claim to be exempted from the additional rate or duty [under the Assessed Taxes Act] or to be entitled to any abatement thereof … it shall be lawful for him or her to appeal to the Assistant Commissioners…”

10. The Charitable Purposes Exemption of 1799 • The Duties upon Income Bill - December 1798 • 45th clause: “[t]hat where any bodies politic or corporate, companies, fraternities, or societies of persons, whether corporate or not, shall be entitled unto any annual income, to the respective amounts before specified, other than and besides any income applicable to charitable purposes, such annual income not applicable to charitable purposes only shall be chargeable with such and the like rates as any other annual income of the same amount will, under and by virtue of this Act, be chargeable with.”

11. The Charitable Purposes Exemption of 1799 • 47th clause - A Statement to the Assessors – “of the annual income of such corporation, company, fraternity, or society, … [specifying] how much and and what proportion of such annual income is not chargeable by virtue of this Act upon such corporation, company, fraternity, or society, and for what purposes the income, not chargeable as aforesaid, is or shall be applicable.”

12. The Charitable Purposes Exemption of 1799 • Duties upon Income Act 39 Geo 3 c. 13 [9 January 1799] • S 5 “[t]hat no corporation, fraternity, or society of persons established for charitable purposes only, shall be chargeable under this Act, in respect of the income of such corporation, fraternity, or society.” • How this section came to be in the Act remains a mystery, as no such clause can be found in the Duties upon Income Bill or the amendments to the Bill.

13. The Duties upon Inhabited Houses Act 1778 • Precedent for the charitable purposes exemption of 1799 • Duties upon Inhabited Houses Act 1778 s. XXXV • “[t]hat nothing herein contained shall extend, or be construed to extend, to charge or make liable any hospital, or house provided for the reception and relief of poor persons, to the payment of the rate or duty to be laid by virtue of this Act.”

14. The Assessed Taxes Act 1798 • Assessed Taxes Act 1798 s XIX • “[t]hat nothing herein contained shall be construed to extend to charge the said additional rate or duty on the amount of the Duties payable on houses, windows, or lights, in respect of any of the Royal or public hospitals, or any chambers or apartments therein used or occupied for charitable purposes.”

15. The debates on Pitt’s Duties upon Income Bill • Pitt’s attempt to reduce “tricks and evasion” • “[O]ur leading principle should be to guard against all evasion … and to extend this as far as possible in every direction …” • In order to prevent evasion and fraud … “ general tax shall be imposed upon all the leading branches of income …”

16. The debates on Pitt’s Duties upon Income Bill • Pitt also maintained that it was “more than ever necessary to render every case of exemption precise …” • That being the case, why then was there no discussion in the House of Commons (or Lords) on charities and their liability to, or exemption from, taxation? • Pitt overrated “the exemptions and deductions” from “all the distinct branches of national rental, and of national profits,” but did he include the churches and charities in that calculation?

17. The wealth of corporations and churches • Colquhoun – 1815 • In 1812 the aggregate income from income in the funds, “including also trustees for orphans, minors, and charitable foundations and institutions [was about] £5,211,063.” • What then was the wealth of corporations and charities in 1798/9? • What would the effect of a tax on their income have been?

18. “local justice” • 14 December 1798 • Simeon hoped that “Corporations were extremely useful for the purpose of administering local justice.” • Pitt noted that “the administration of justice and the internal police of the country” depended on the landed class. • The suggestion is that the taxation of charities would hinder their role in administering local justice.

19. Friendly Societies • 26 December 1798 • The Times and an Abstract of the Duties upon Income Bill • “[n]othing in this Act shall extend to charge the fund of any Friendly Society established under the 33rd of His present Majesty.” • Yet there was no mention of charitable institutions in this regard.

20. The nature of 18th century politics • Pitt “was himself essentially the government in all its departments …” • Pitt preferred to “[]pick] out ambititious and talented individuals” to whom he promoted “to positions of responsibility.” • Pitt “used a number of back-benchers as very useful opinion formers …”

21. The nature of 18th century politics • While Pitt “engaged in painstaking research in order to get his facts straight before making plans” which “involved exhaustive preparation and many long discussions with colleagues and advisers [such as] Rose, Auckland, Addington, Liverpool, Grenville and Canning)” why then is there no evidence of discussion concerning England’s charities and his proposed Duties upon Income? • There is no evidence that Pitt consulted with the charities of London, or the Guilds themselves, in spite of Pitt’s relationship with the Grocers’ Guild.

22. Pitt and the Evangelicals • Did Pitt consult the Clapham Sect, in particular Hannah More and William Wilberforce? • More was “a firm friend and valued correspondent” of Wilberforce. • In the spring of 1796 More “spent five hours with Pitt’s adviser and former secretary, the Bishop of Lincoln, with a copy of [Pitt’s] proposed Poor Law Bill making pretty free use of [their] pencils in the margin.” • Did More do the same with Pitt’s Duties upon Income Bill?

23. Pitt and the Evangelicals • William Wilberforce was a politician, philanthropist, slavery abolitionist, and the leader of the Clapham Sect. • Wilberforce funded More’s work “in promoting moral and social improvement [in the Mendips], and maintained a long-term commitment to supporting her work.” • Did More and Wilberforce join forces and ensure that Pitt exempted charities from the Duties upon Income?

24. Sequel • By 1816 the Property Tax, “that odious measure,” had been repealed. • The Morning Chronicle expressed the hope that the unpopularity of the Property Tax “will deter [future governments] from any similar effort to thwart the wishes or oppose the interests of the people of England.” • In 1842 Peel reintroduces Income Tax.

25. Sequel • In 1863 questions are being asked about the wealth of charities and their exemption from Income Tax. • On 4 May 1863 Gladstone unsuccessfully challenges the charitable purposes exemption from Income Tax. • In 1888 the Moravians begin their claim against the Special Commissioners for a refund of £73 8s 3d. • In 1891 Lord Macnaghten took the stage. The rest is history.