ICAEW raises concerns over charity tax proposals

The Institute of Chartered Accountants in England and Wales (ICAEW) has raised serious concerns about proposed changes to charity tax rules, warning they could discourage people from leaving charitable bequests in their wills. 

What’s changes are on the table? 

Following the Autumn Budget 2024 consultation and July 2025’s draft legislation, the government is planning significant changes to how charities handle tax compliance from April 2026. The proposals affect three key areas that could fundamentally alter how charitable giving operates. 

Tainted charity donations 

The first concerns “tainted charity donations” – rules designed to prevent donors gaining financial advantages from their generosity. The government wants to assess not just why someone makes a donation, but what happens afterwards. The ICAEW argues this creates an unfair burden, as donors often have little control over outcomes once they’ve made their gift. 

Attributable income 

Perhaps most worryingly for the charity sector, the definition of “attributable income” would expand to include legacies. This means charities could face tax charges if they don’t spend inherited funds quickly enough on their charitable purposes. The ICAEW warns this uncertainty around timeframes could make potential donors think twice about including charities in their wills. 

Investment rules 

The third change would tighten investment rules, requiring all 12 recognised charitable investment types to directly benefit the charity. Without meeting this test, investments would be treated as non-charitable expenditure, limiting valuable tax exemptions. 

The ICAEW’s response 

The ICAEW’s formal response recommends the government abandon the first two proposals entirely.  

For tainted charity donations, they argue that introducing an outcome test is “problematic” because donors may have limited influence over what happens after making their donation. 

Regarding legacy taxation, they believe the changes are unnecessary and could create damaging uncertainty about timeframes for charitable spending. 

Implications for the sector 

These concerns extend beyond technical tax matters. At a time when many organisations are already managing increased demand and constrained resources, additional regulatory complexity presents considerable challenges for charities. 

The charity sector now awaits the government’s response to these concerns before legislation is finalised that could reshape charitable giving for years to come.