Draft Finance Bill 2025–26: charity compliance measures

Released in July and still in draft at the time of publication, the Draft Finance Bill 25/26 potentially introduces significant changes to charity tax compliance. Proposed amendments include:

• Under the new legislation, legacies would be classified within the ‘attributable income definition’, meaning that the funds have to be used strictly for charitable purposes.
• HMRC is considering tightening the rules around qualifying investments (investments which are considered tax exempt under current legislation). Under the proposed changes, the requirement to demonstrate a clear benefit to the charity will be extended to all qualifying investments, as opposed to solely those classified as ‘type 12’.
• The revised tainted donations rules shift focus from donor intent to financial outcomes, tightening scrutiny. These measures aim to prevent abuse of tax reliefs and reinforce public trust.

Charities should review their financial arrangements and consult with tax advisers as appropriate to ensure alignment with the new requirements. Auditors will need to incorporate these changes into their compliance checks and risk assessments. Professionals and trustees across the sector will need to ensure they are up to date with the latest rules, assuming the draft Bill in its current form passes into legislation.

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If you have any questions, then please feel free to get in touch with Michaela Johns on 023 8046 1256 or email Michaela Johns.