The Finance Bill 2025-26 has now been published, with the following changes to Charity Compliance rules.
Previously, legacies received by Charities or CASCs were not treated as ‘attributable income’ and therefore benefited from generous inheritance tax relief without associated spending restrictions. Under the new legislation, legacies will be classified within the ‘attributable income definition’, meaning that the funds must be spent on the Charity’s charitable purposes. Failure to do so may result in a tax charge.
There are 12 investment types that the government recognises for charitable tax reliefs. Previously, one category was subject to a statutory anti-avoidance requirement (that the investment must not be made for anti-avoidance purposes). The requirements will now apply to all 12 investment categories.
The revised tainted donations rules previously considered solely the motivation or intent of the donor when determining whether a donation was tainted. The rules have now broadened to also consider the outcome of the transaction, has the donor received a financial benefit regardless of their stated or subjective motivation. The bar for establishing whether a transaction is tainted has also been lowered, with the test of ‘financial advantage’ being replaced by ‘financial assistance.’
HMRC is also updating its guidance to bolster its enforcement powers. Whilst the majority of charities meet their tax obligations, there is a minority that persistently fail to comply but still claim tax relief, such as Gift Aid. HMRC are working on changes to guidance that will improve HMRC’s powers to compel compliance through sanctioning trustees and charity managers.
The new measures will take effect for transactions that occur on or after 6 April 2026.
Further information: Legislation to introduce changes to charity tax rules – GOV.UK