Charity and philanthropy update – spring 2026

The CRS is an international information exchange regime aimed at tax transparency which was implemented into UK law in 2015. 

Following announcements in the UK’s Autumn Budget 2024 (which in turn followed a 2024 Government consultation (the Consultation)), new regulations were introduced on 24 June 2025 (the Regulations) that implemented changes to the scope of the CRS, in line with international obligations (for further information, see: Further transparency developments: CRS updates incoming). One of the key changes introduced by the Regulations is that most UK charities will no longer need to report under the CRS. 

The CRS builds on the Foreign Account Tax Compliance Act (FATCA) architecture developed by the US. As such, the terminology used relates to “Financial Institutions” (FIs) and “Non-Financial Entities” (NFEs) (as in FATCA). From a UK perspective, the exchange of information under the CRS is achieved by requiring UK FIs to collect data and report relevant information to HMRC (via its AEIO service) primarily regarding non-UK resident “account holders”. This information is then shared globally by CRS adopters. Previously, as a general rule, if a charity fell within the definition of an NFE, it would not be required to report under the CRS, whereas if a charity was an FI, CRS reporting requirements may have applied.

Whilst it may not be obvious that charities, which do not generally provide financial services, would be classed as FIs, the definition was broad and captured some charities – for example, endowed charities or charities which receive at least 50% of their income from investments which are professionally managed. Previously, such charities would have needed to identify whether they maintained “Reportable Accounts” – i.e. “financial accounts” with non-UK resident “account holders” - and if so, conduct due diligence requirements and report certain information on those “account holders” to HMRC. This might have captured, for example, a UK charitable trust making grants to relevant overseas beneficiaries. 

The above approach was at odds with FATCA, which specifically excludes most charitable entities from reporting. The Consultation recognised that charitable entities were generally at low risk of circumventing the aims of the CRS and that the CRS reporting obligations could be burdensome for charities. As such, the Consultation mooted designating most charities as “Qualified Non-Profit Entities”, a new sub-class of FIs, which would not be required to report. This has now been implemented by the Regulations with effect from 1 January 2026. 

If a charity falls within the definition of a Qualified Non-Profit Entity (which will capture most UK charities, provided they are registered as such with the Charity Commission (the Commission) or with HMRC for charitable tax purposes; see further: HMRC's guidance (IEIM400995)), then it may deregister from HMRC’s AEIO service from 1 January 2026, from which point all reporting obligations will cease. 

Additionally, HMRC will accept that any such entity that has not previously registered with HMRC’s AEIO service, because it has never had “Reportable Accounts”, was not required to register by 31 December 2025. This is a helpful outcome for any charity that may previously have overlooked its CRS reporting commitments, but which now falls outside of the regime’s scope.

Overall, the changes are welcome news for charities and their advisors, reducing the compliance burden on such entities. 

We have written previously about the phased implementation of the Charities Act 2022 (CA 2022), which has been brought into force in stages from October 2022 onwards. The final phase of implementation occurred at the end of last year, with sections 15 and 16 CA 2022, relating to ex gratia payments by charities – i.e. those made under moral rather than legal obligations - coming into force from 27 November 2025. The changes introduced by the CA 2022 largely work by amending the Charities Act 2011 (CA 2011).

Section 15 CA 2022 adds a new section 331A to the CA 2011, which gives charity trustees a new power to make small ex gratia payments without needing prior authorisation from the Commission. The size of the payment allowed will depend on the gross income of the charity, ranging from £1,000 (for charities with a gross income of £25,000 or less) to £20,000 (for charities with a gross income of over £1M). 

Previously, it had only been possible for charity trustees to make ex gratia payments if they obtained the prior consent of the Commission, court or Attorney General, regardless of the size of the payment. This change therefore provides greater flexibility for charity trustees wishing to make this type of payment, although trustees will still need to seek permission for payments above the applicable thresholds (and the governing document of the charity may restrict or exclude this power).

Section 16 CA 2022 amends section 106 CA 2011, creating a statutory test for making an ex gratia payment, based on the previous common law test. The test is objective, allowing an ex gratia payment to be made if the charity trustees “could reasonably be regarded” as being under a moral obligation to make the payment. As such, it does not require a personal decision of the trustees and so allows the trustees to delegate the decision-making on ex gratia payments (although, as with other decisions, the trustees will still be ultimately responsible).

However, neither of the above provisions apply to “excluded property of a relevant charity”, which means specific property owned by sixteen museums and galleries (the full list of charities and excluded property is set out in a schedule to the regulations implementing sections 15 and 16 CA 2022). In those cases, the previous law will continue to apply, so the charities will only be able to make ex gratia payments – of whatever size – with the requisite external consent. This is to address concerns that the legislation would have enabled museums and galleries to return objects in their collections to their country of origin without external oversight. 

The exclusion of the property of these museums and galleries from the general scope of the rules has however been questioned by the Joint Committee on Statutory Instruments. In its response, the Department for Digital, Culture, Media & Sport (DCMS) said that the exclusion reflects the Government’s view that the institutions listed should remain bound by their governing legislation, pending a proper consideration of the impact of allowing these institutions to dispose of objects from their collections by way of ex gratia payments. DCMS added that the potential impact of the provisions on these institutions and their collections was not debated in Parliament and was not subject to comprehensive consultation. It therefore remains to be seen whether those institutions will remain subject to these restrictions, or whether they might be relaxed in due course.

The Commission (in November 2025) published accompanying guidance on how charities can make an ex gratia payment, including practical guidance on delegating the decision-making and example scenarios where the new rules may apply.

We have written previously about the introduction of the Economic Crime and Corporate Transparency Act 2023 (ECCTA) and its impact on affected companies (including, regarding the introduction of mandatory ID verification for company directors etc.). As charitable companies fall within ECCTA’s scope (charitable trusts and CIOs are unaffected, as ECCTA deals with Companies House oversight, which is not relevant to these types of entity), it is important to note changes introduced by ECCTA effective from 18 November 2025 which affect registers that must be maintained by charitable companies.

It has long been the case that charitable companies are required to keep several statutory registers, including registers of directors, directors’ residential addresses, secretaries, persons of significant control (PSCs) and members.

Previously, these registers were required to be kept at the charitable company’s registered office or at a single alternative inspection location (SAIL). There was also a legal obligation to make registers (other than that of the directors’ residential addresses) available for public inspection. Both the charitable company and its officers (i.e. its directors/trustees and secretary) committed an offence if the statutory registers were not properly maintained.

From 18 November 2025, the requirement to maintain the registers listed above, other than the members’ register (which will continue to be maintained internally by each relevant company), was replaced with an obligation to file that information with Companies House instead. As such, Companies House now keeps the relevant information centrally, rather than this being held locally by each charitable company, and the Companies House record is now the definitive source of this information (although affected charities may wish to continue to keep equivalent non-statutory registers for record-keeping purposes). 

This means that the relevant information is (still) publicly accessible, other than directors’ residential addresses and the day (but not month or year) of an individual’s birth. However, protection applications can be made by affected individuals to limit the disclosure of their information by Companies House in certain circumstances (see further: Apply to protect your details on the Companies House register - GOV.UK). Any changes to the information contained in the relevant registers must be notified to Companies House within 14 days of the change occurring.

In terms of practical next steps, affected charity trustees should make sure they have complied with the new filing requirements and use this as an opportunity to check that the information recorded in their charity’s registers is up to date. It is recommended that affected charities keep an eye on relevant Companies House updates and consider signing up to associated mailings; see further: Changes to company registers - Changes to UK company law. 

Although we have not covered this in any detail in this update (given our separate materials on this linked above), directors and PSCs of charitable companies should also ensure that they have complied, or are taking steps to comply, with the mandatory ID verification processes which also came into effect from 18 November 2025.

Whilst charities may not have been the main focus of last Autumn’s UK Budget (or this year’s Spring Statement) announcements, a surprise restriction on the inheritance tax exemption available on gifts to charitable trusts was introduced, and further announcements were made regarding the introduction of legislation effective from 6 April 2026 to strengthen the charity tax rules on tainted donations, approved investments and non-charitable expenditure. We discuss these developments further below.

• Inheritance tax – restriction of charity exemptions
  
  The inheritance tax exemption applying to gifts to charities will be limited to gifts made directly to UK charities, with effect from 26 November 2025 (for lifetime gifts) or 6 April 2026 (for charitable gifts made on death). 

  The change is primarily being implemented by amendments to section 23 of the Inheritance Tax Act 1984.  This will mean that from the relevant dates, the exemption will only apply to gifts to ‘charities’ which meet the definition in Schedule 6 of the Finance Act 2010. This definition has certain jurisdiction, registration and management requirements, including that the entity must be subject to the jurisdiction of the UK courts and registered as a charity with the Commission. Previously, the exemption was available if a gift was made to a trust ‘for charitable purposes only’, regardless of registration with the Commission. 

  The policy reason for the change appears to be to limit the exemption to gifts to UK charities only (presumably in response to the Routier¹ case, which held that HMRC’s refusal to grant inheritance tax relief on a gift of UK assets to a Jersey charity – with exclusively charitable purposes under English law – was incompatible with EU law). 

  The removal of the exemption for assets which are held on trust for charitable purposes may have a particular impact on trusts for charitable purposes established by will.  This change may mean that wills need to be reworded to give assets directly to UK registered charities or any such charitable will trust will need to be fully distributed to UK registered charities or registered as a charity itself with the Commission within two years of the testator’s death, to ensure that the inheritance tax exemption applies.

  Whilst it is understood that the potential impact of these changes has been raised with relevant government bodies (by STEP, for example), no amendments have been made to the (now published) Finance Act 2026 (the Finance Act) to reflect these concerns. However, it is hoped that guidance may be forthcoming which would make the application of the new rules clearer and perhaps outline scenarios in which it might be unnecessary to revisit pre-existing wills and estate planning. 

  That said, it appears that the change does not affect the inheritance tax “relevant property” regime for trusts (which imposes charges when assets leave the trust or on a trust’s 10-year anniversary, generally at a maximum rate of 6%). This means that trust property held for charitable purposes only under this regime (for example, a non-UK trust for English charitable purposes which is not registered with the Commission) will continue to be exempt from UK inheritance tax.

• Changes to the charity tax rules on tainted donations, approved investments and non-charitable expenditure
  
  The introduction of stricter compliance requirements on charities and donors claiming charity tax reliefs has been in the pipeline since 2023, after the previous Government carried out a consultation on charity tax compliance focussed on “protect[ing] the integrity of the sector”. The aim is to bring a minority of charities which have questionable compliance practices into line with the majority of charities which comply with the applicable rules in full. 

  The current Government confirmed at the Autumn Budget on 30 October 2024 that it would press ahead with implementing the four proposals considered in the consultation. The policy objective was reframed as another way to “close the tax gap”. In light of that objective, it is no surprise that the changes are a stick rather than a carrot, designed to impose a more robust compliance framework for charities by:

  • widening the scope of the test for when a charitable donation is tainted and consequently is ineligible for the usual tax reliefs on charitable gifts;
     
  • requiring all investments by charities to be for the purpose of benefitting the charity to enable the investments to qualify for tax relief;
     
  • reducing the income tax relief available to charities which have non-charitable expenditure; and
     
  • giving HMRC increased powers to sanction charity trustees and managers who do not ensure that the charity meets its tax obligations. 
     

  The first round of draft legislation enacting three of the four proposals was published on “Legislation Day” (21 July 2025). That draft legislation was amended by the Finance Bill 2025-26 (the Finance Bill), published following Budget Day on 26 November 2025, and is now in final form as the Finance Act (which received Royal Assent on 18 March 2026). 

  We discussed the detail of the new measures and how charities might approach them in our Legislation Day update. To the extent the draft rules have been amended by the Finance Act, these are considered below. 

  Equivalent rules for charitable companies and trusts 

  On Legislation Day, only the draft income tax legislation, which applies to charitable trusts, was published. Charitable companies are subject to corporation tax as opposed to income tax, so the draft legislation did not deal with the position for incorporated charities. 

  The amended legislation published in the Finance Act covers both the income and equivalent corporation tax positions. As anticipated, the two regimes will be identical, as charities generally receive the same UK tax treatment whatever their legal form.

  Extension of the charitable benefit requirement to all categories of charitable investments

  Previously, the draft legislation provided that for an investment by a charity to be tax exempt, it must be “made for an allowable purpose” i.e. if “it is reasonable to draw the conclusion, from all the circumstances of the case, that the investment is made for the sole purpose of benefitting the charitable trust”.

  That requirement has now been amended to allow investments which are made for an allowable purpose “and one or more ancillary or incidental purposes”. This change will provide a welcome degree of flexibility for charities whose investment returns provide other legitimate benefits in addition to directly benefitting the charity.

  Potential for (even) further reduced income tax relief for charities with non-charitable expenditure

  The definition of attributable income and gains has been further widened in the updated legislation to include not just legacies given on death but also legacies resulting from post-death variations. The extension of the drafting follows naturally from the policy objective behind the change – which is that given the inheritance tax relief they attract, it is only fair to require legacies to be applied as charitable expenditure. 

  Given that post death variations attract the same favourable inheritance tax treatment as legacies on death (provided the relevant conditions are met), it makes sense to include them in the pool of attributable income and gains for consistency. 

  Sanctions for failure to meet tax obligations

  Limited detail is currently available around the proposed sanctions for charities which fail to meet their tax obligations and what HMRC’s powers will be in relation to this. In its update published on Budget Day, the Government stated that these powers would be set out in new HMRC guidance, rather than legislation. No date has been set for the publication of draft guidance. 

  Charities should ensure that all their reporting is up to date as soon as possible to avoid falling foul of HMRC’s wider powers. Additionally, in recent parliamentary debates on the Finance Bill (before it was enacted), it has been promised that HMRC will help the sector prepare for the changes with “clear communications and guidance”, so it is hoped that this support will be forthcoming to ensure a smooth implementation of the reforms.

[1] Routier and another v HMRC [2019] UKSC 43

Following parliamentary discussions in late 2025 and as trailed in a speech by the prime minister, Keir Starmer, in February 2026, DCMS has announced in a press release this March that it plans to increase the Commission’s regulatory powers in order to ‘tackle extremist abuse’ (although this could end up affecting charities more widely).

The measures under consideration include (amongst other things):

• mandatory trustee ID verification (which will presumably bring the general position more in line with recent ID requirements affecting charitable companies; see above);
   
• an expedited process for investigating charities suspected of engaging in extremist behaviour, including strengthening Commission powers to close such charities down, if needed (including processing decisions faster and reviewing the appeals process); and
   
• digitisation of charity accounts.

The above measures are in addition to a new consultation expected to launch shortly, which aims to “road-test” plans to automatically ban individuals with a criminal conviction for hate crime from serving as charity trustees or senior managers (e.g. chief executives and chief finance officers). The consultation will also consider plans to strengthen the Commission’s powers to disqualify individuals who have promoted violence or hatred (expanding the current rules which enable the banning of those with unspent convictions relating to, for example, terrorism, money-laundering and bribery). 

Additionally, the automatic disqualification of those who have provided false or misleading information to the Commission is being considered, alongside awarding the Commission discretionary powers to ban trustees who have been excluded from the UK, deprived of British citizenship or subject to sanctions (previously, the Commission had to show that such individuals’ conduct was likely to damage public trust and confidence in charities).

The proposals form part of the Government’s wider plans “to actively renew the UK’s social contract”, as further detailed in a recent Government policy paper, and presumably respond to figures cited in DCMS’s March press release of over 400 Commission regulatory cases opened for hate speech and 70 police referrals made by the Commission, relating to possible criminal offences, since October 2023.

The proposals have prompted some concern across charity sector bodies who have called for any such expanded Commission powers to only be introduced after consultation with the sector and in a proportionate manner. So, for now, it looks likely to be a question of watching this space.