New rules for charities claiming tax relief on charitable investments

"Non-charitable expenditure" reduces pound-for-pound any other of a charity's income or gains that would otherwise qualify for tax relief. Previously, a charity's investment falling within any of 11 categories would avoid this fate (as an "approved charitable investment") whether or not the investment was made specifically in order to take advantage of a tax relief, for the charity or any other person.

The prohibition on avoiding tax has now been made explicit for investments of any of the 11 types made on or after 6 April 2026. The investment must also now be made either for the "sole purpose of benefiting" the charity, or "for that purpose and one or more ancillary or incidental purposes." The meaning of 'ancillary/incidental non-charitable purposes' is unclear. It is possible that HMRC accepts the reality of an element of private benefit in the typical compensation arrangements for investment advice.

What if a charity considers a non-listed investment? The non-listed universe is quite large, including for example limited partnership interests in private investment funds. Previously, a catch-all provision ("Type 12") swept in non-listed investments, which HMRC would allow if satisfied on a claim that they were made for the benefit of the charity and not for the avoidance of tax. Type 12 no longer exists, and has been replaced by a power for HMRC to approve a claim that a non-listed investment is made for an allowable purpose (the sole benefit of the charity, or for that purpose and ancillary/incidental non-charitable purpose) and not for the avoidance of tax. So, trustees' need to consider tax avoidance as to non-listed investments continues for those made after 5 April 2026.

HMRC has provided excellent guidance on these changes, by updating Annex iii: approved charitable investments and loans - GOV.UK on 17 July 2026. HMRC emphasises that trustees must record their reasons for investing charitable funds in listed or non-listed investments. HMRC gives two examples of non-listed, investment loans that fail the allowable purpose test; one drawn from the facts of a tax tribunal decision and the other from gift aid planning by trading subsidiaries.

A key difference between listed and non-listed investments is that the latter must be approved by HMRC "on a claim." Guidance is provided in detail for those charities normally filing returns of income, capital gains, or corporation tax. But what if a charity does not receive a tax return; how does it make a claim?

HMRC first concedes that no advance clearance is available, and so trustees must approve investments without certainty on this tax point. HMRC goes on to detail what must be included in a written claim, presumably in a letter, "where HMRC have not asked for a tax return to be completed." (emphasis added). Copies of prospectuses must be attached.

We imagine that preparing a formal claim detailing the year's non-listed investments would be challenging to trustees of some charities that do not file tax returns. Reasonable minds may differ as to what the amended statute and Guidance demand with respect to the need for submitting formal claims. Some charities may decline to submit and bank on HMRC, on an inquiry, not arguing that a non-listed investment, whose satisfaction of the allowable purpose test is supported by contemporaneous, written evidence, fails as an approved charitable investment for trustees' declining to make a post-completion claim. No trustee, however, should under any circumstances ignore an HMRC notice to the charity to file a tax return.

For more information, please get in touch with Thomas Dick.