Charity compliance changes 2025/2026: What UK charities and CASCs need to know

The tainted charity donation rules are designed to ensure that tax reliefs are not available where a donor enters into arrangements intended to secure a financial advantage for themselves or a connected person.

The Finance Bill proposes two key changes that will lower the threshold for when the rules apply.

From donor motivation to outcome

At present, HMRC considers the donor’s purpose in entering into an arrangement. Following the proposed changes, HMRC will also consider the outcome of the arrangement - specifically, whether the donor in fact receives a financial benefit - regardless of their stated or subjective motivation. This broadens the circumstances in which a donation may be treated as tainted.

“Financial advantage” becomes “financial assistance”

The existing test, which looks at whether the donor obtains a “financial advantage”, will be replaced with a wider “financial assistance” test. Although not yet defined, the Government has said this will capture loans, guarantees, indemnities, and any form of investment, potentially expanding HMRC’s ability to challenge arrangements.

Together, these changes will tighten the criteria for tax relief eligibility and make it easier for HMRC to deny relief where a donor obtains any form of material benefit.

Currently, only one of the 12 categories of “approved charitable investments” recognised for charitable tax relief is subject to a statutory anti-avoidance requirement (that the investment must not be made for tax avoidance purposes).

The Finance Bill will extend this requirement to all 12 categories, including:

• investments in charity common investment or deposit funds
• interests in land (except where held purely as security)
• listed shares and securities
• units in authorised unit trust schemes
• shares in OEICs
• bank deposits (other than those involving back-to-back lending arrangements)
• certificates of deposit
• any loan or other investment made for the benefit of the charity

This expansion increases the scrutiny charities must apply to ensure investments are made for genuine charitable purposes rather than to secure tax advantages for the charity or any other person.

Under the current rules, legacies received by charities or CASCs are not treated as “attributable income” and therefore benefit from generous Inheritance Tax relief without associated spending restrictions.

The proposed change will bring legacies within the definition of attributable income, meaning that:

• legacies must be applied for charitable purposes, and
• failure to do so may result in a tax charge.

This introduces an additional compliance requirement for charities receiving testamentary gifts.

Alongside the draft legislation, HMRC is updating its guidance to bolster its enforcement powers. The changes will enable HMRC to sanction trustees and charity managers who fail to meet tax obligations while continuing to claim charity tax reliefs (such as Gift Aid).

HMRC intends to rely on failures to meet the “management condition” - which requires charity managers to be “fit and proper” persons - to justify sanctions. 

These may include:

• restriction or withdrawal of access to charity tax reliefs, and
  action directed at individual trustees or managers.

This signals a potentially sharper compliance environment and a more assertive application of HMRC’s existing powers.

The measures are proposed to apply to transactions occurring on or after the first week of April 2026.

The changes are not intended to affect individuals making genuine philanthropic gifts. Instead, they target abusive arrangements and strengthen HMRC’s ability to intervene where tax reliefs are being misused.

However, the proposals will require charities and CASCs to adopt greater vigilance across donations, legacies, and investment activity. Boards and charity managers may wish to review internal due diligence processes and ensure that governance and record-keeping frameworks are sufficiently robust ahead of the new rules.