At the Autumn Budget 2024, the government published a consultation on possible changes to some of the tax compliance rules applying to charities and community amateur sports clubs (CASCs). This was followed, in July 2025, by the publication of draft legislation for Finance Bill 2025/26 for technical consultation. If enacted, the legislation will take effect from April 2026. 

The proposed changes  

The changes made by the draft legislation include: 

• requiring that attention is paid to the outcome of a transaction, in addition to the donor’s motivation for making a donation, in applying the tainted charity donations rules. The purpose of the tainted charity donations rules is to prevent the donor from obtaining a financial advantage from making the donation;
• extending the requirement for an investment to be made for the benefit of the charity to all 12 of the investment types that are recognised for charitable tax relief purposes. An investment that is not an approved charitable investment is treated as non-charitable expenditure, restricting the charity’s tax exemptions; and
• amending the definition of “attributable income” to include legacies to charities. The government says that this will require the charity to spend the legacy on its charitable purpose or face a tax charge.  

The government has also said that it will amend the “fit and proper persons” test to address poor compliance by some charities with their tax obligations. HMRC will publish amended guidance on the test later in 2025.  

ICAEW’s response 

In its response to the consultation (ICAEW Representation 62/25), ICAEW’s Tax Faculty has recommended that the government abandons its proposed changes to: 

• the tainted charity donations rules. ICAEW is concerned that introducing an outcome test to the tainted charity donations rules may be problematic because the donor may have limited influence over the outcome after the donation has been made; and
• the definition of “attributable income”. ICAEW believes that the changes are unnecessary and that, if enacted, they could cause uncertainty around the timeframe within which funds should be used for the purposes of the charity. As a result, some potential donors may be reluctant to leave gifts to charities in their will. 

In addition, ICAEW has suggested that the proposed purpose test for assessing approved charitable investments is changed to a “wholly or mainly” test. This will ensure that investments held for a secondary purpose, other than for benefitting the charity, are not prevented from being treated as approved.