The Chancellor’s 2025 Budget introduces several provisions with direct implications for the charity sector.
Strengthened charity tax compliance
New legislation effective from April 2026 will tighten rules on tainted donations, approved investments, and non-charitable expenditure. These measures aim to reinforce compliance and governance across the sector.
Please see our blog here for an overview of these changes.
VAT zero rating for donated goods
From April 2026, business goods donated to charities for onward distribution to beneficiaries or for charitable use will qualify for VAT zero rating. There will be limits on the value of goods donated. Eligibility will be restricted to HMRC-registered charities, and certification requirements are expected. Detailed guidance will follow.
For more information click here.
Inheritance tax (IHT) changes
Following changes to the definition of ‘charity’ for tax purposes in the Finance Act 2010 in 2023, IHT relief was restricted to only gifts to charities registered in the UK. However these changes didn’t catch charitable trusts and community amateur sports clubs. The 2025 budget corrects separate rules in the Inheritance Act 1984 on gifts to charitable trusts and community amateur sports clubs so that they too must now meet the new definition of charity (i.e. registered in the UK) to qualify for IHT relief.
For more information on inheritance tax changes read here.
VAT and social housing
The Government will be launching a consultation on a reform on the VAT rules to incentivise the development of land for social housing.
Other measures
- Search and rescue vehicles: Vehicle excise duty exemption from April 2027, subject to consultation.
- National living wage: Increase of 4.1% from April 2026, with higher rises for younger workers. While positive for employees, this will increase cost pressures for charities.
- Corporation tax penalties: Penalties for late returns will double from April 2026, with fines escalating for repeated delays.
Charities should ensure they review these changes to assess operational and financial impacts.
For a full copy of the budget see here.
If you have any questions please contact Sarah Williams or Neil Burton.
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