Major changes to charity tax relief rules to stop tax avoidance
Sara White, Editor, Business & Accountancy Daily
Overhaul of tax relief for charities from April to stop tax avoidance will see tougher rules on tainted donations, approved charitable investments, and income from donations in wills
From April 2026, the government will introduce changes to the rules on tainted donations, approved charitable investments, and attributable income to prevent misuse of charitable tax reliefs.
These changes will affect all UK charities, Community Amateur Sports Clubs (CASCs), and donors, and the agents and intermediaries who support them.
The key changes will affect:
- tainted donations: changing the rules on what is treated as a tainted donation;
- approved charitable investments: requiring all investments to be for the benefit of the charity and not for the avoidance of tax; and
- attributable income: bringing legacies into the attributable income definition.
The tainted donations rules will move from a motivation-based test to an outcome-based test. This will ensure that donors do not receive any financial benefit, direct or indirect, from giving to charities or CASCs.
The test of ‘financial advantage’ will change to ‘financial assistance’, lowering the threshold for determining whether a donation is tainted, HMRC said.
Approved charitable investments
The government recognises 12 investment types for charitable tax relief, which will all have to meet a single condition from the new tax year.
Under the new rules, the charity must make the investments for its own benefit and not for tax avoidance by any party.
HMRC stressed: ‘This update simplifies inconsistencies across the existing rules and prevents misuse of charitable investment reliefs for tax avoidance.’
Attributable income changes
There is also a change to the definition of attributable income to now include legacies. As legacies may have already benefited from inheritance tax (IHT) relief, charities and CASCs will need to use legacy funds for charitable purposes to avoid a tax charge.
This aligns the treatment of legacies with existing treatment of residual estate income and ensures charities direct legacy funds to their charitable purposes.
Impact for charities, CASCs and agents
The changes to prevent misuse of charitable tax reliefs are wide-ranging and HMRC advises charities to:
review donation structures and investment arrangements to ensure they meet the new rules; and
identify, monitor and record legacy income and make sure legacy funds are used for charitable purposes.
HMRC plans to publish detailed guidance in April 2026. A policy paper outlining the changes was issued last summer.
