Charities Act 2022: update on permanent endowment rules

The Charity Commission has recently published an update of its guidance on the impact of the Charities Act 2022, as a number of the changes came into effect on 7 March 2024. Therefore this seems a good time to remind ourselves of some of the most significant changes – and in this blog, I will focus on the changes to rules around permanent endowment. 

There are a significant number of charities that hold some form of permanent endowment, and the changes that have been made will give their trustees more flexibility over these funds. 

There are three main changes to the rules regarding permanent endowments; the first is a technical change, but the other two have the potential to be very helpful to some charities. 

The technical change widens the scope of the rules that previously allowed unincorporated charities to spend out permanent endowed funds that were less than £25,000, and it now also covers incorporated charities.   

The other two changes are likely to have a greater impact and are as follows: 

1. Trustees can borrow from permanent endowment 

Trustees are now able to borrow up to 25% of the value of the permanent endowment without any Charity Commission approval. This does not give trustees the ability to raid these funds, as trustees can only exercise the power if they are satisfied that there are arrangements in place to repay the borrowed amounts. However these arrangements can be for up to 20 years. 

The major benefit of this change is that it will give trustees the opportunity to spend money on projects that further their charitable objects, and where they may not be able to borrow commercially, or where a commercial interest rate would make the project unviable. Furthermore, the maximum 20 year repayment period enables an arrangement that commercial lenders are unlikely to consider. 

2. Where a charity adopts a total return approach, the trustees now have the power to make social investments that have a negative or uncertain return where this furthers the charitable objects. Previously the trustees duty to protect the assets of the charity meant that they could not make an investment if they thought it would lose money. This change gives the trustees a lot more flexibility to consider a wider range of opportunities, as they are not duty-bound to just consider the financial return. Trustees can now also consider the social impact.   

In a time when charities are under financial pressure, any changes that give them more flexibility should be welcomed. These changes won’t help all charities, but where your charity has a permanent endowment then it is worth considering the impact of these changes. 

The changes that became effective on 7 March are less significant than to permanent endowment, but they are all positive and are as follows: 

• Making changes to governance documents – there are now new rules in place that make certain changes easier. 

• Selling, leasing or otherwise disposing of charity land – there are new rules in place covering the sale of land 

• Charty mergers - changes introduced ensure that the register of charity mergers is more effective to help ensure that legacies find their way to the right merged charity.  

There have been lots of other changes announced in the Charities Act 2022, and with those above now becoming effective, virtually all are now active. The main change yet to come into effect is to do with ex-gratia payments, and we will talk about this in a subsequent blog. 

If you would like any further information then please contact us.