The Finance Act 2026 dealing with amendments affecting charity tax relief took effect on 6 April 2026 and form part of a wider package of measures intended to strengthen compliance and maintain confidence in the proper operation of charitable tax reliefs.
While many charities will not notice an immediate impact on their day-to-day operations, the reforms place greater emphasis on governance, record keeping and demonstrating that charitable funds and investments are being used for genuine charitable purposes. Trustees and finance teams should ensure appropriate procedures are in place to evidence compliance with the revised rules.
The principal amendments concern four aspects of the charity tax regime: approved charitable investments, attributable income, tainted donations, and sanctions for failure to meet tax obligations.
Approved charitable investments
The Act extends the requirement that an investment must be made for the benefit of the charity, and not for the avoidance of tax, across all 12 categories of approved charitable investments. An investment must now satisfy the statutory “allowable purpose” test, namely that it is reasonable to conclude, having regard to all the circumstances, that the investment is made for the sole purpose of benefiting the charitable trust or for that purpose together with ancillary or incidental purposes, and is not made for the avoidance of tax.
Attributable income
The Act brings legacies received by charities and Community Amateur Sports Clubs (CASCs) within the attributable income provisions. In practical terms, a legacy gifts made by will are treated as taxable income. However, they remain exempt to the extent they are applied solely for charitable purposes. The amendments therefore place particular emphasis on evidencing the application of legacy assets and funds to charitable purposes.
Tainted donations
The Act amends the tainted charity donation provisions so that the analysis is no longer confined to the donor’s purpose, but extends to the outcome of the arrangements in question. It also replaces the previous “financial advantage” formulation with a broader concept of “financial assistance”. A donation may accordingly be treated as tainted where a linked person who is not a charity receives financial assistance, directly or indirectly, from the recipient charity or a connected charity under or in connection with the relevant arrangements.
Sanctions for failure to meet tax obligations
The reforms also contemplate sanctions for charities and Community Amateur Sports Clubs (CASCs) that fail to meet their tax obligations. As set out in HMRC’s policy papers, the objective is to strengthen HMRC’s ability to secure compliance among the minority of organisations that persistently fail to comply with filing and payment requirements while continuing to claim charitable tax reliefs. At the time of writing, this aspect of the regime is principally addressed in policy and guidance material rather than detailed statutory provisions, and further HMRC guidance is expected.
How we can assist
Taylor Emmet Solicitors’ Charity Assist Team Expert legal guidance to help your charity grow, manage and protect legacy income.
For more information contact our Charity Assist Team on 0330 390 7342 or email CharityAssist@tayloremmet.co.uk
This note is intended as a general summary of the relevant legislative changes and does not constitute legal or tax advice. Specific advice should be sought in relation to individual circumstances.