Policy paper

Changes to the charity compliance measures

Published 21 July 2025

Who is likely to be affected

All UK charities, community amateur sports clubs (CASCs) and their donors will be subject to the changes being introduced. However only a small number are likely to be affected by the changes.

General description of the measure

At Autumn Budget 2024, following a consultation in 2023, the government announced four changes to charity compliance rules for:

• tainted donations to charities
• approved charitable investments
• attributable income
• sanctions for failure to meet tax obligations

For tainted donations, approved investments and attributable income HMRC is publishing draft legislation for comment at Legislation Day 2025 with a view to the final legislation taking effect from April 2026. HMRC will publish draft guidance for the measure to sanction charities for failure to meet their tax obligations later.

Tainted donations to charities

The tainted charity donations rules ensure that the usual tax reliefs are not available where donors enter into arrangements to obtain a financial advantage from a charity or CASC for themselves, or someone else involved in the arrangement, in return for their donation. The government will change the rules governing what is regarded as a tainted donation. HMRC will no longer look solely at the motivation of the donor to determine whether a donation is tainted. Instead HMRC will also look to the outcome of the transaction.

In addition, the government will seek to lower the bar for establishing whether a transaction is tainted by replacing the test of ‘financial advantage’ with ‘financial assistance’.

Approved charitable investments

There are 12 investment types that the government recognises for charitable tax relief purposes. Currently only one of them is subject to the requirement that the investment must be made for the benefit of the charity and not for the avoidance of tax (whether by the charity or any other person). The government will legislate to extend this requirement to all twelve categories. This will simplify the rules which will be the same for all investment categories.

Attributable income

Legacies that a charity or CASC receives may have been subject to considerable Inheritance Tax relief. The government will legislate to bring legacies into the attributable income definition. This means the legacy must be spent on the charity’s charitable purpose. Otherwise it will be subject to a tax charge. This will also equalise the treatment of income from an estate in the hands of the charity, the residual value of an estate already being treated as attributable income.

Sanctions for failure to meet tax obligations

The majority of charities meet their tax obligations but a small minority persistently fail to comply and yet still claim tax reliefs such as Gift Aid. HMRC are working on changes to guidance that improve the powers of HMRC to compel compliance through sanctioning trustees and charity managers.

Policy objective

This measure will support the government’s aims of closing the tax gap through strengthening compliance powers to challenge abusive arrangements. At the same time some of the measures will simplify the current tax rules by equalising treatment across all investment types and across different sources of income and expenditure for the charity.

Background to the measure

The measure follows a consultation that was announced in March 2023 and closed in July 2023. The summary of responses for this consultation was published at Autumn Budget 2024. Draft legislation will be published at Legislation Day 2025.

Detailed proposal

Operative date

The measure will take effect for transactions that occur on or after:

• 6 April 2026, for entities that report through Income Tax Self Assessment
• 1 April 2026, for entities that report through Corporation Tax Self Assessment

Current law

Current law is:

• for tainted donations, in sections 809ZJ to 809ZO of Income Tax Act 2007, and sections 939C to 939I of Corporation Tax Act 2010
• for approved charitable investments, in section 511 Corporation Tax Act 2010 and section 558 Income Tax Act 2007
• for attributable income, in Part 10 of Income Tax Act 2007 and Chapters 2 and 3 of Part 11 Corporation Tax Act 2010

Proposed revisions

Draft legislation will be published at Legislation Day 2025 that will amend the rules governing tainted donations, approved charitable investments and attributable income for charities and CASCs as follows:

• for tainted donations Condition B will be changed — ‘main purpose’ will be replaced by ‘outcome’, and ‘financial advantage’ will be replaced by ‘financial assistance’
• for approved investments a new condition will be added — the purpose behind the investment must be to benefit the charity and not to avoid tax will be extended to all investment types
• for attributable income legacies received by the charity will become chargeable to tax if they are not spent charitably

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
0	Negligible	+20	+35	+35	+35

These figures are set out in Table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.

Economic impact   

This measure is not expected to have any significant macroeconomic impacts.  

Impact on individuals, households and families

The changes will not affect individuals seeking to make truly philanthropic donations but is targeted at those seeking to take advantage of charitable tax reliefs for personal gain.

This measure is not expected to impact on family formation, stability or breakdown.

There may be some impact on the customer experience of individuals as the measure will require donors and charities to familiarise themselves with the new rules. The changes do have the effect of regularising the treatment for different types of activity which will help simplify the rules.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. If a protected group is overrepresented in this population, then it will be disproportionately impacted. HMRC is not currently able to identify individuals impacted by this measure and so cannot determine conclusively if there are any equality impacts.

Impact on business including civil society organisations

This measure will have a negligible impact on businesses and civil society organisations such as charities. One-off costs will include familiarisation with these new rules and setting up processes to ensure that they are met. Ongoing costs will include time taken for employees to ensure that charities continue to meet HMRC’s requirements for tainted donations, charitable investments, and charitable expenditure. This includes time to prepare and maintain records in line with HMRC requirements and any costs associated with dealing with HMRC enquiries. 

The changes do have the effect of regularising the treatment for different types of activity which will help simplify the rules.

HMRC will help the sector understand and prepare for the change by providing clear communications and guidance.

Operational impact (£ million) (HMRC or other)

Changes to HMRC IT systems will incur estimated costs of around £1 million.

HMRC will not need to deploy additional operational resource. 

Monitoring and evaluation

Once the measures have been implemented, HMRC will assess the impact by monitoring tax reliefs claimed by UK charities and CASCs with no new evaluation planned. 

None of HMRC’s evaluation principles apply to this measure.   

Further advice

If you have any questions about this change, email Sean Perkins, Charities Policy at charitypolicy.taxteam@hmrc.gov.uk.