From April 2026, several changes to the UK charity tax rules are expected to take effect through the Finance Bill 2025–26. These reforms focus mainly on strengthening HMRC’s ability to tackle tax avoidance and simplifying existing rules by equalising treatment across investment types and different sources of income and expenditure.
While the changes apply across the sector, they are largely technical and aimed at preventing ‘abusive arrangements’ – schemes that use a charity mainly to gain tax relief, rather than to support its charitable work. For the majority of charities, with straightforward funding and governance structures, the practical impact is likely to be limited.
Policy overview
In the Autumn Budget 2024, the government announced four changes to charity compliance rules for:
- Tainted donations to charities;
- Approved charitable investments;
- Attributable income; and
- Sanctions for failure to meet tax obligations.
Tainted donations to charities
The rules defining what constitutes a tainted donation will be revised. Rather than focusing solely on the donor’s motivation, HMRC will consider the outcome of the arrangements when determining whether a donation is tainted. In addition, the threshold for identifying tainted donations will be broadened by replacing the current test of “financial advantage” with the wider concept of “financial assistance”.
Approved charitable investments
Going forward, all 12 approved investment types for charitable tax relief – rather than just one – must be made for the charity’s benefit and not for the avoidance of tax.
Attributable income
Legacies received by a charity will be brought within the attributable income rules, meaning they must be used for charitable purposes or a tax charge may apply. This aligns the treatment of legacies with that of other estate income, such as the residual value of an estate.
Sanctions for failure to meet tax obligations
The majority of charities meet their tax obligations, but a small minority repeatedly fail to do so while continuing to claim reliefs such as Gift Aid. HMRC is developing updated guidance intended to strengthen its powers to address persistent non-compliance, including the possible sanctioning of trustees and charity managers.
In contrast to the three reforms outlined above, this measure will not take effect in April 2026, with draft guidance expected to be issued later.
How M+A Partners can help
Trustees and finance teams should ensure their processes are up to date, particularly for complex donations or investment arrangements
Our team of experts help charities understand how tax rules apply to them, including the correct categorisation of different income streams. For charities required to submit tax returns to HMRC, we provide support throughout the reporting process to ensure that any applicable reliefs are correctly claimed. If you would like further information on how we can assist your charity in meeting its tax obligations, or if you need advice on a specific tax-related issue, please contact our experts.
