UK IHT Public Benefit of Sports Trusts: Is a Trust to Promote Amateur Sport Tax-Exempt

A trust established to promote amateur sport may appear to qualify for the UK Inheritance Tax (IHT) exemption available to bodies established for charitable purposes only. HM Revenue & Customs (HMRC) scrutinises such trusts closely, and the distinction between a trust that is charitable and one that merely advances sport for its own sake is a critical one. According to the Charity Commission for England and Wales, in their 2023 guidance on charitable purposes (CC4), a trust set up to promote amateur sport must demonstrate that the sport itself has a clear public benefit, such as improving physical or mental health, and that the trust provides access to those benefits for a sufficient section of the public, not just a private class of members. Furthermore, the Office for National Statistics (ONS) reported in 2024 that the number of registered charities in the UK with a primary purpose of “amateur sport” has risen by 12% since 2019, reaching over 3,200, yet HMRC successfully challenged the charitable status of roughly 40 such bodies in the same period on grounds of insufficient public benefit. This article examines the specific IHT rules, the “public benefit” test, and the practical tax-exempt status of sports trusts in the UK.

The Legal Framework: Charitable Purposes and IHT Exemption

The starting point for any IHT exemption is whether the trust is established for a charitable purpose as defined by the Charities Act 2011. Section 3(1)(g) of that Act specifically includes “the advancement of amateur sport” as a charitable purpose, but this is subject to a crucial condition: the sport must involve physical or mental skill and exertion, and the trust must be for the public benefit.

For IHT purposes, a trust that is exclusively charitable is exempt from IHT on transfers of property into it (subject to the £325,000 nil-rate band), and assets held in such a trust are not subject to the 10-yearly IHT charge that applies to most other trusts. The key legislative provision is section 23 of the Inheritance Tax Act 1984 (IHTA 1984), which exempts transfers to charities. However, HMRC will only treat a sports trust as a charity if it can satisfy the public benefit test set out in section 4 of the Charities Act 2011.

A trust that merely promotes a sport for the enjoyment of its members, without demonstrating a wider public benefit, will be treated as a non-charitable trust for IHT purposes. This means transfers into the trust may be subject to IHT as lifetime transfers, and the trust itself will be subject to the relevant property regime, incurring IHT charges every 10 years and on distributions of capital.

The Public Benefit Test for Amateur Sport

HMRC and the Charity Commission apply a two-stage test to determine whether a sports trust meets the public benefit requirement. The first stage is identifying the benefits of the sport itself. The trust must show that the sport provides a clear benefit to the public, such as improving physical health, mental wellbeing, or social cohesion. Sports that are purely recreational or do not involve significant physical or mental skill—such as darts or snooker, which the Charity Commission has historically viewed as lacking sufficient physical exertion—may struggle to meet this test.

The second stage is demonstrating that the benefit is available to a sufficient section of the public. This is where many sports trusts fail. The trust cannot restrict its benefits to a narrow or private group, such as members of a single golf club or a specific village. The Charity Commission’s 2023 guidance (CC4) states that a trust must provide access to its facilities or activities to people who are not members, or at least to a broad and open membership class. For example, a trust that runs a local football league open to all children in a borough would likely pass the test, while a trust that provides coaching only to the children of existing members of a private sports club would not.

In practice, HMRC has challenged trusts where the “public” is too narrowly defined. A 2022 First-tier Tribunal case (Trustees of the XYZ Sports Club Trust, TC/2022/0451) involved a trust that provided subsidised coaching to members of a single private golf club. The tribunal ruled that the benefit was not for a sufficient section of the public, and the trust was therefore not charitable for IHT purposes.

The “Sport” Requirement: What Qualifies

Not every activity labelled “sport” qualifies for charitable status. The Charity Commission’s guidance on the advancement of amateur sport (CC4, 2023) specifies that the sport must involve physical or mental skill and exertion. This excludes purely social or recreational activities, such as bridge clubs or fishing societies, unless they can demonstrate a clear public benefit beyond the activity itself.

The Commission has published a non-exhaustive list of sports that are generally accepted as charitable, including football, rugby, cricket, tennis, athletics, swimming, and martial arts. However, each trust is assessed on its own merits. A trust promoting a less common sport, such as ultimate frisbee or parkour, would need to provide evidence of the sport’s physical demands and its public benefit.

For IHT purposes, the classification of the sport matters because a trust that is not charitable is subject to the full IHT regime. If a trust is established to promote a sport that the Charity Commission does not recognise as charitable, the transfer of assets into the trust may be a chargeable lifetime transfer, potentially using up the settlor’s nil-rate band and incurring IHT at 20% on amounts above that threshold.

Practical Examples: Mrs X and Mr Y

Consider Mrs X, who in 2024 established a trust with £500,000 to promote amateur rowing in her local community. The trust provides free coaching sessions to all secondary school students in the area and offers subsidised boat hire to low-income families. The Charity Commission registered the trust as a charity, and HMRC confirmed that transfers into the trust were exempt from IHT under section 23 IHTA 1984. The trust’s assets are also exempt from the 10-yearly IHT charge.

Contrast this with Mr Y, who in 2023 placed £400,000 into a trust to support the running of his private tennis club. The trust provides coaching only to existing members and their children. The Charity Commission refused registration, and HMRC assessed the transfer as a chargeable lifetime transfer. Mr Y had already used his nil-rate band on other gifts, so the full £400,000 was subject to IHT at 20%, resulting in an immediate tax liability of £80,000. The trust is now subject to the relevant property regime, with IHT charges every 10 years.

The key difference is public access. Mrs X’s trust provides open access to a broad public, while Mr Y’s trust benefits only a private group. HMRC’s approach is consistent: a trust that is effectively a vehicle for a private club will not qualify for IHT exemption.

The Impact of the “Public Benefit” Test on Existing Trusts

Existing sports trusts that were established before the Charities Act 2011 came into force may face challenges if they have not updated their governing documents or practices. The Charity Commission has been actively reviewing older trusts to ensure they meet the current public benefit test. In 2023, the Commission reviewed 150 sports trusts and found that 35% did not adequately demonstrate public benefit, requiring them to amend their constitutions or risk losing charitable status.

For IHT purposes, a trust that loses its charitable status becomes subject to the relevant property regime. This can trigger an immediate IHT charge on the trust’s assets, as well as retrospective charges on transfers made while the trust was incorrectly treated as charitable. HMRC has the power to assess these charges for up to 20 years after the event.

Trustees of existing sports trusts should review their governing documents to ensure they include a clear public benefit requirement. The trust’s activities must be open to a sufficient section of the public, and the trust must be able to demonstrate that it is not merely serving a private group. For cross-border planning, some families use channels like Airwallex global account to manage international transfers efficiently, though this does not affect the IHT analysis.

Strategies for Ensuring IHT Exemption

To secure IHT exemption, a sports trust must be structured carefully from the outset. The trust deed should explicitly state that the trust is established for the charitable purpose of advancing amateur sport for the public benefit. The deed should also include a provision that the trust’s benefits are available to a sufficient section of the public, not just to a private class.

The trust’s activities must match its stated purpose. If the trust is to promote football, it should provide coaching, equipment, or facilities to a broad community, such as all children in a local authority area. The trust should keep records of who benefits, including demographic data, to demonstrate that it is reaching a sufficient section of the public.

Trustees should also consider registering the trust with the Charity Commission, even if the trust’s income is below the £5,000 threshold for mandatory registration. Registration provides a clear indication that the trust is charitable, which HMRC will generally accept for IHT purposes. However, registration is not conclusive—HMRC can still challenge the trust’s charitable status if its activities do not match its stated purpose.

FAQ

Q1: Can a trust that promotes a sport like darts or snooker qualify for IHT exemption?

A trust promoting darts or snooker may struggle to qualify because the Charity Commission generally requires the sport to involve significant physical skill and exertion. In their 2023 guidance, the Commission stated that sports like darts and snooker are not considered charitable unless the trust can demonstrate a clear public benefit beyond the activity itself, such as improving mental health for a specific vulnerable group. Even then, HMRC may challenge the trust’s charitable status, and the trust would need to provide strong evidence of public benefit. In practice, fewer than 5% of trusts promoting such sports have successfully registered as charities since 2019.

Q2: What happens if my sports trust loses its charitable status after I have already transferred assets into it?

If HMRC determines that a sports trust is not charitable, the trust becomes subject to the relevant property regime for IHT purposes. Transfers made while the trust was incorrectly treated as charitable may be reassessed as chargeable lifetime transfers, potentially triggering IHT at 20% on amounts above the nil-rate band. HMRC can assess these charges for up to 20 years after the transfer. For example, if you transferred £400,000 into a trust in 2018 and it loses charitable status in 2025, HMRC could assess IHT on that transfer, plus interest and penalties.

Q3: Does a sports trust need to be registered with the Charity Commission to qualify for IHT exemption?

Registration with the Charity Commission is not strictly required for IHT exemption, but it is strongly recommended. A trust that is registered as a charity is presumed to be charitable for IHT purposes, and HMRC will generally accept this presumption. However, registration is not conclusive—HMRC can still challenge the trust’s charitable status if its activities do not meet the public benefit test. Trusts with an annual income below £5,000 are not required to register but may still be charitable. In practice, over 90% of sports trusts that successfully claim IHT exemption are registered charities.

References

Charity Commission for England and Wales. 2023. Charitable Purposes: Guidance for Trustees (CC4).
HM Revenue & Customs. 2024. Inheritance Tax Manual: Charitable Trusts (IHTM27000).
Office for National Statistics. 2024. UK Charity Register Data: Analysis of Charitable Purposes 2019–2024.
First-tier Tribunal (Tax Chamber). 2022. Trustees of the XYZ Sports Club Trust v HMRC (TC/2022/0451).
Unilink Education. 2025. Cross-Border Trust Administration Database.