Permanent endowment

The bill makes several changes to provide additional clarity on the law around permanent endowment. Clause nine creates a new simplified definition of permanent endowment. Clause 10 amends sections 281 and 282 of the Charities Act 2011 to make clear that the powers in those sections to release restrictions on spending permanent endowment capital are available to corporate charities. Clause 10 also amends section 282 so that the sole factor in deciding whether or not Charity Commission oversight is required is the value of the permanent endowment fund, where that exceeds £25,000, increased from £10,000.

Clause 12 creates a new power for charities to borrow from permanent endowment without seeking the permission of the Charity Commission. This power is more restrictive than the powers amended by clause 10, so may be used by trustees where they do not think it would be appropriate to fully release restrictions.

Clause 13 creates a new power to use permanent endowment to make social investments that trustees could not otherwise make. The new power is limited to charities that have already opted in to investing on a total return basis and would allow them to make social investments which they would not otherwise be able to make because they are expected to produce a loss but which will further the charity’s purposes and make some financial return. Taking a total return approach to investments means that both any increase in the capital value of permanent endowment investments as well as the income are available for expenditure. This will help those charitable foundations and others who use social investments and has been welcomed by the ACF. Under the current regime, investments which are expected to produce a loss are prohibited.

The expansion of the toolbox available to trustees in seeking to further their charities’ purposes, represented by the new additional powers to borrow and (where taking a total return approach to investment) make social investments with a potentially negative or uncertain financial return are very welcome. We agree that the safeguards remaining in place are appropriate.

Ex gratia payments

Clause 15 allows boards to make small ex gratia payments without authorisation from the Charity Commission. These can be made where trustees feel there is a moral obligation to make a payment, but no legal requirement to do so. The level of payment that can be made without the Charity Commission’s approval will depend on the income of the charity, as set out in subsection (six) ranging from £1,000 for charities with an income under £25,000 to £20,000 if a charity’s income is over £1m.

We welcome this update to the law which will allow charity boards to honour moral obligations more easily.

This page was last reviewed for accuracy on 19 July 2021