Government Brings Forward Changes to Charity Tax Relief Rules from April 2026

Charity trustees are accustomed to navigating an evolving regulatory environment. While most legislative updates do not alter the day-to-day work of a charity, trustees still need to understand what is changing and whether it affects their organisation’s governance or compliance responsibilities.

For many charities, the practical impact is expected to be limited. However, trustees should still have a clear understanding of the changes so they can be confident their charity continues to operate within the spirit of the rules.

Most charities are already operating in accordance with the rules. These changes are mainly aimed at closing down a small number of arrangements where tax reliefs have been used in ways that were never intended. For the majority of organisations, this is about understanding the update and ensuring existing governance processes continue to support good decision making.

What is Changing?

The legislation introduces targeted amendments to the charity tax compliance regime.

The first area relates to tainted donations. The existing rules are designed to prevent situations where a donor obtains a financial benefit in connection with a donation to a charity.

Under the proposed changes, the current test in the legislation will be adjusted so that the focus moves from the donor’s “main purpose” to the “outcome” of the arrangement. In addition, the wording will change from “financial advantage” to “financial assistance”, which broadens the scope of the rule. In practical terms, this is intended to make it more difficult for arrangements involving charities to generate unintended tax outcomes.

The second change concerns approved charitable investments. HMRC currently recognises twelve types of investment that can qualify for certain tax reliefs available to charities. At present, only one of these categories is subject to an explicit requirement that the investment must be made for the benefit of the charity and not as part of a tax avoidance arrangement.

The new legislation will extend that requirement across all recognised investment types. The intention is to ensure that the same principle applies consistently whenever charities make investments that rely on tax relief.

The third change relates to attributable income. The legislation will bring legacies received by charities within the attributable income rules. This means that where a charity receives funds from a legacy, those funds must ultimately be applied for the charity’s charitable purposes. If they are not, a tax charge may arise.

This change is intended to align the treatment of legacies more closely with other forms of income received by charities.

Why is the Government Introducing These Measures

According to HMRC, the changes are intended to strengthen the charity tax compliance framework and help prevent arrangements that seek to obtain reliefs in ways that were not intended.

At the same time, the legislation aims to make the rules more consistent. Extending existing conditions across all investment types and bringing legacies within the attributable income framework is intended to simplify parts of the regime and reduce opportunities for misuse.

Importantly, HMRC has also indicated that the majority of charities already meet their tax obligations, and the overall impact of these changes on the sector is expected to be limited.

What This Means for Charity Trustees

For most charities, these changes are unlikely to require immediate operational changes. Organisations with straightforward funding, investment arrangements, and legacy income should find that existing practices remain appropriate.

That said, trustees may still wish to ensure they understand how the new rules operate, particularly where the charity is involved in more complex financial arrangements.

For example, boards may want to consider whether any donation or funding structures involve arrangements that provide financial support or assistance to other parties in connection with a gift.

Trustees may also wish to review any less typical investment structures to ensure they are clearly designed for the benefit of the charity and cannot be interpreted as part of a tax planning arrangement.

Finally, where the charity receives legacy income, it may be sensible to confirm that internal processes and records clearly demonstrate how those funds are applied for charitable purposes.

In many cases, these will simply be matters of good governance that charities are already addressing.

Questions Trustees May Wish to Consider

When reviewing these changes, trustees may find it helpful to ask a small number of practical questions.

• Do we clearly understand any complex donation or funding arrangements involving the charity?
• Are any of our investment structures outside the usual way charities manage their funds?
• Do our records clearly demonstrate how legacy income is applied to our charitable purposes?
• Would independent tax advice help clarify any arrangement we are considering?

A short discussion at a board or finance committee level may often be sufficient to ensure trustees remain comfortable with the charity’s position.

Final Thoughts

The proposed changes to charity tax rules from April 2026 are targeted amendments rather than a major overhaul of the system. They focus on tightening the rules around tainted donations, extending existing safeguards to all approved charitable investments, and bringing legacies within the attributable income framework.

For most charities, the practical effect is expected to be modest. Even so, trustees will naturally want to remain aware of the changes and ensure their organisation’s arrangements continue to align with both the rules and the charity’s purposes.

Where any uncertainty arises, taking advice at an early stage can help boards maintain confidence that the charity’s governance and financial arrangements remain sound.

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