UK Budget 2026 brings VAT relief on donated medicines and a handful of smaller changes for charities

The UK government's Budget 2026, published on October 28, 2026, contains a small set of measures for charities and donors. The main one is a new zero rate of value-added tax (VAT) for medicines that drug companies give away, which HM Revenue & Customs (HMRC) estimates will cost £15 million in 2026-27, rising to £25 million a year from 2029-30.

Neither the Budget document nor HMRC's overview of tax legislation and rates mentions Gift Aid, the scheme that lets charities claim basic-rate income tax on individuals' donations. Most of the measures will be legislated in the Finance Bill 2026-27.

The measures at a glance

Donated medicines

Under VAT law, a business that gives away goods from its assets is treated in certain circumstances as making a supply, so VAT at the standard 20% rate has been due on donated medicines even though nobody paid for them. HMRC's impact note says the new zero rate is meant to remove that disincentive to donating. It covers medicines donated to the NHS for a patient's treatment, through the Early Access to Medicines Scheme, for clinical trials or for continued treatment after a trial, including donations made through an intermediary. Recipients must certify the medicine's qualifying use.

The change was first announced on June 23, 2026, by the then Exchequer Secretary to the Treasury, and applies from that date. HMRC says it does not expect the measure to affect civil society organizations. Drug companies will no longer pay VAT on the value of what they give, and patients may benefit indirectly.

Rescue charities and gifts to the nation

From April 1, 2027, registered charities whose main purpose is search and rescue in the UK or its waters will not pay Vehicle Excise Duty on vehicles that are registered to the charity, used mainly for search and rescue and marked "Search", "Rescue" or "Search and Rescue" on both sides. The exemption was announced at Budget 2025, and HMRC updated the eligibility rules on October 28.

The Cultural Gift Scheme lets UK taxpayers give important works of art and heritage objects to be held for the public. Individual donors receive a tax credit worth 30% of the object's value and companies 20%, to be used over five years. The scheme shares a budget of £40 million a year with the Acceptance in Lieu scheme. From April 6, 2027, joint owners will be able to claim relief on their own shares, and donors will get one opportunity to change their plan for using the credit. The reform was first announced at Tax Update 2025.

A separate VAT126 measure affects palliative care, air ambulance, search and rescue and medical courier charities that reclaim VAT without being VAT-registered. Unlike registered bodies, they cannot at present appeal HMRC's decisions on their claims; the new power would allow appeal rights to be created.

Two wider VAT changes also reach charities. The Budget extends to June 30, 2027 the temporary 0% VAT rate on domestic electricity, which has applied since October 1, 2026; the Treasury's policy costings say it covers all supplies eligible for the 5% reduced rate, including those to charities. And from April 1, 2027, heat batteries join the VAT relief for energy-saving materials installed in homes and charity buildings, as that relief returns to a 5% rate from its temporary zero rate, as planned since 2022.

Pensions, estates and charity

Most unused pension funds and pension death benefits will count toward a person's estate for inheritance tax from April 6, 2027, under the Finance Act 2026. An estate that leaves 10% or more of its net value to charity can pay a reduced inheritance tax rate of 36% on some assets, instead of the standard 40%, according to GOV.UK. The Budget lets those administering an estate choose whether notional pension property is counted in the general part of the estate or separately when working out that rate.

Public money to draw in philanthropists

Outside tax, the Budget gives £15 million to the Office for the Impact Economy to work with businesses, investors and philanthropists on raising more money to support women and girls.

Small next to existing reliefs

The new measures are modest compared with the reliefs charities already receive. HMRC's charity tax relief statistics, published in July 2026, put tax reliefs for charities and their donors at about £7.4 billion in the tax year to April 2026, up 4% on the year before. That included £2.87 billion of business rates relief, £1.88 billion of Gift Aid paid to charities and £1.28 billion of inheritance tax relief on donations.