From 6th April 2026, the government has introduced important changes to charity tax compliance rules that affect how legacies received by charities and Community Amateur Sports Clubs (CASCs) are taxed. Trustees and finance teams should understand what has changed and how to respond.
What are the new rules?
Under existing tax legislation, most income received by charities is classed as “attributable income”. This means it must be applied for charitable purposes in order to remain tax-exempt. Until now, legacies – i.e. gifts left to charities or CASCs in wills – were excluded from this definition.
From 6th April 2026, the rules have changed. Legacies received by charities and CASCs are now within the definition of attributable income. As a result:
- Legacy funds must be used solely for the organisation’s charitable or qualifying purposes
- If a charity or CASC applies legacy income to non‑charitable expenditure, HMRC may impose a tax charge on the relevant amount
This reform brings the treatment of legacies into line with other estate-related income, such as residuary gifts, which are already treated as attributable income.
Why is the government making this change?
The measure forms part of a wider package of charity compliance reforms announced following consultation and included in the Finance Act 2026. The government has made clear that the intention is to:
- Close minor loopholes in the charity tax regime
- Strengthen HMRC’s ability to challenge misuse of tax reliefs
- Ensure consistent treatment of different types of charitable income
Importantly, it has been emphasised that these changes are aimed at a small minority of non‑compliant organisations, rather than the charitable sector as a whole.
What does “attributable income” mean in practice?
If a charity incurs non‑charitable expenditure – spending that does not further its stated charitable purposes – HMRC can withdraw tax relief on an equivalent amount of its attributable income. Now that legacies fall within scope:
- Unspent legacies remain tax‑exempt as long as they are intended for charitable use
- There is no fixed deadline requiring legacy funds to be spent within a particular period
- However, charities must be able to demonstrate that legacy income is being held or applied in line with their charitable purposes
The law already requires well‑governed charities to use all funds, including legacies, for charitable purposes. The key change is that there will now be a tax consequence if those duties are not met.
How does this affect Community Amateur Sports Clubs?
CASCs are expressly included within the new rules. Like charities, CASCs will need to ensure that legacy income is used for qualifying sporting purposes to maintain their tax‑exempt status.
This change comes at a time of increased scrutiny for CASCs, with HMRC strengthening oversight of tax compliance and reporting more generally.
Will most organisations be affected?
In practical terms, the effect is expected to be limited for the majority of charities and CASCs. Many organisations already track legacy income carefully and apply it appropriately. However, thanks to the reforms, robust record‑keeping, clear audit trails showing how funds are applied and strong governance around financial decision‑making have become more important. Smaller charities, in particular, may find the additional compliance burden more challenging, even if their underlying practices are sound.
Action points for charities and CASCs
Now that the changes are in effect, charitable organisations should consider the following steps:
1. Review legacy funds
- Identify any existing or expected legacy income
- Confirm how these funds are designated and recorded in accounts
2. Strengthen documentation
- Maintain clear records showing that legacy income is being applied, or will be applied, to charitable or qualifying purposes
- Ensure minutes are kept of any trustee decisions relating to legacy funds
3. Check spending classifications
- Review what counts as charitable versus non‑charitable expenditure under HMRC guidance
- Pay particular attention to mixed‑use costs or discretionary spending
4. Update internal policies
- Ensure financial controls and reserves policies explicitly cover the treatment of legacy income
- Confirm that staff and volunteers responsible for finance understand the new rules
5. Seek professional advice if needed
- Complex estates, restricted legacies or unusual spending arrangements may warrant specialist tax or legal advice since April 2026
