HM Revenue & Customs has decided that charities will be able to reclaim some VAT on investment management fees.
The move could be worth millions of pounds a year to charity investors and could bring a tax windfall to charities that put in claims several years ago. A spokesman for HMRC said it had already made some repayments to charities, but was still considering how widely its decision would apply.
Russell Moore, head of the VAT team at accountancy firm Saffery Champness, said the decision came in the wake of a test case brought by the Nuffield Foundation.
The case followed a principle established in 2005, when the Children's Society won the right to partially reclaim VAT on fundraising costs depending on what proportion of its expenditure related to business activities.
"HMRC originally agreed to this 18 months ago," said Moore. "But it had stopped paying out on claims while it considered its position on retrospective applications. Clearly, this is more good news for the sector. It's encouraging because charities have campaigned for this since the mid-1990s."
HMRC said it would shortly issue a briefing explaining its full position.