Overview of the Policy Shifts
In recent months, the UK government published the Charities Tax Compliance: Summary of Responses consultation outcome, aimed at updating rules applicable to tainted donations, approved investments, non-charitable expenditure, and governance oversight. Changes are being implemented from April 2026. (gov.uk)
Key Changes to Know
| Area | Change | Implications |
|---|---|---|
| Tainted donations / financial advantage | “Financial advantage” test will become “financial assistance” and the motive-based test replaced with an outcomes test. (gov.uk) | More donations may be taxable or disallowed if viewed as tax avoidance, even without explicit intent. |
| Charitable investments | Rules extended beyond “type-12” investments; all must be for charity benefit not tax avoidance. (gov.uk) | Investment policies of charities need reviewing; due diligence becomes critical. |
| Non-charitable expenditure / legacy income | Legacy income will now be included under non-charitable expenditure rules. (gov.uk) | Estates left to charities may generate income that triggers tax or reporting burdens. |
| Sanctions / governance | A trustee with persistent non-compliance risks failing the “Management Condition” & could be disqualified. HMRC can withhold Gift Aid payments or disallow reliefs. (gov.uk) | Trustees must ensure accurate filing & payment; strong internal systems of accountability needed. |
Practical Compliance Steps
For charities and trustees, here’s what to do:
- Review existing policies on investments and donations**, especially where complex arrangements or legacies are involved. Update them to ensure compliance under new outcome-based tests.
- Train trustees and staff about the changes. Emphasise understanding of what “benefit to the charity” means and what counts as “non-charitable expenditure.”
- Audit expected income sources. Legacy gifts and estate income need special attention in reporting.
- Ensure timely filing. Missed returns or late filing can lead to withholding of reliefs and sanctions. Build internal deadlines; consider appointing a compliance officer.
- Communication with HMRC. If guidance seems unclear, use the published summary, technical notes, and engage with sector bodies.
Example in Practice
_Charity X receives a legacy estate with residual income of £100,000 that it holds for 3 years before using. Under old rules, the income may not have been “attributable income.” Under updated rules, this legacy income becomes part of the charity’s attributable income and subject to the non-charitable expenditure rules. Failure to include could result in loss of Gift Aid or tax challenges. |
Proactive review and early adaptation will help charities avoid compliance pitfalls and maintain public trust under the strengthened rules.