HMRC published updated detailed tax guidance for charities this week. If you’re a charity trustee, finance manager, or adviser, here’s what you need to know about what these changes might mean for you.

What are the key changes?

Tainted donations

The previous tainted donations rule was all about donor intent and used the “main purpose” test. The changes have separate rules for donations from 6 April 2026 which have shifted the focus now to outcomes. If a donation results in any financial assistance to the donor (a broader term than financial advantage), HMRC has more latitude to deny relief. Even if the benefit is indirect or unintended, charities must be able to show that donors aren’t getting anything back.

Approved charitable investments

From 6 April 2026, a single condition applies to all 12 types of investment a charity makes: investments must benefit the charity, not enable tax avoidance. This single test removes inconsistencies and strengthens anti-avoidance. Trustees must be able to justify their investment and loan making decisions and demonstrate how the loan benefits the charity. HMRC may ask to see evidence of the trustees’ decision-making process and the information considered as part of that process.

Legacies included as attributable income

Legacy income is now firmly within scope. Charities must apply income including legacies for charitable purposes or face a potential tax charge. There’s no fixed deadline to spend these funds, but organisations must be able to evidence charitable use. If charities have ‘non-charitable expenditure’ they will lose tax relief on the equivalent amount of attributable income and gains, which will now include legacy income from 6 April 2026.

Compliance and enforcement

HMRC is stepping up scrutiny, especially around Gift Aid and tax relief claims. The “fit and proper persons” rules mean trustees themselves are under the microscope. Sanctions for non-compliance are on the table. The focus isn’t on removing reliefs, but raising the bar for evidence and governance. Charities will need robust audit trails and decision-making records.

Wider context

Elsewhere, the guidance aligns with new VAT relief on donated goods (from April 2026) and provides clarifications around Gift Aid and membership benefits. It’s a joined-up approach, pointing to a sector-wide push for transparency and compliance.

What does this mean for charities?

• Much tighter scrutiny on donations: Even indirect benefits to donors could invalidate Gift Aid or trigger compliance issues. Corporate partnerships, sponsorships, and complex donor arrangements are all risk areas.

• Investments must clearly serve charitable purposes: Tax-efficient structures aren’t enough. Trustees must show a clear link to the mission, with no tax-driven structuring. Expect more HMRC challenge on “structured” investments.

• Legacy income requires active tracking: Charities must track legacies and show how funds are applied. Accumulating funds without clear use exposes organisations to tax risk.

• Governance and documentation standards rise: Evidence, audit trails, and decision-making records are essential.

• Trustees face greater accountability: Personal implications via the Fit & Proper Persons test. Non-compliance could result in loss of tax reliefs.

How we can support

The new landscape calls for proactive review of donation structures, especially corporate donations, sponsorships, and any arrangements with linked benefits. We can support you to:

• Strengthen Gift Aid processes: Validate donation eligibility, clarify treatment of memberships vs. benefits, and implement robust Gift Aid and audit trails.

• Gift Aid and fundraising workshops: helping your charity to optimise and make the most out of Gift Aid with different initiatives whilst ensuring you are compliant with the rules.

• Investment governance and documentation: Review portfolios to ensure they qualify as charitable investments for tax purposes, and documentation for trustee rationale aligning with charitable objectives and charity benefit.

• Compliance health checks: Perform periodic tax compliance reviews, checking filing accuracy, record keeping, and internal controls.

• Trustee training and advisory: Translate the new rules into practical policies and decision frameworks, helping trustees understand risk, not just compliance.