Global menu

Our global pages

Close

Law reform on the horizon as new Charities Bill progresses through UK Parliament

  • United Kingdom
  • Corporate
  • Education - Briefings

14-07-2021

Legislation in the charities sector is often criticised as being overly complex and prevents charities from focussing fully on helping their beneficiaries. On 11 May 2021, the Queen, speaking in Parliament, set out the UK Government’s plan to introduce a new Charities Bill (the “Bill”) which promises to reduce the level of bureaucracy faced by charities. The Bill is now progressing through the House of Lords before going to the Commons.

The Bill comes as a result of the Government’s long-awaited response in March 2021 to the Law Commission’s detailed report on the Technical Issues in Charity Law (the “Report”), which was published back in September 2017.  

The Report was not a wholesale review of charity law, rather it focussed on technical issues including: how governing documents could be amended; land transactions involving charity land; and permanent endowment (property of a charity such as land, buildings, cash or investments which cannot be spent as if it were income). 

According to the Law Commission, the aim of the forty-three recommendations (thirty-seven of which have been accepted by the Government) is to simplify some of the more technical areas of charity law which have historically caused unnecessary expense and have prevented charities from dedicating their full resources for the public benefit.

The recommendations cover the following technical issues:

  • changing purposes (i.e. a charity’s objects) and amending governing documents generally;
  • disposals and mortgages of charity land;
  • permanent endowment; and
  • when and to whom trustees can make ex gratia payments out of charity funds.

In addition:

  • financial thresholds in the Charities Act 2011 (“ChA 2011”);
  • the treatment of the proceeds of failed fundraising appeals;
  • remuneration of trustees for the supply of goods to their charity;
  • deemed gifts to charities listed on the register of mergers;
  • trust corporation status; and
  • a range of other areas, including charity insolvency, powers of the Charity Commission and matters relating to the Charity Tribunal.

In her ministerial foreword to the Government’s response to the report, Baroness Barran explained that the changes will: “make it simpler and easier for charities to respond to opportunities to achieve their charitable purposes in an effective, sustainable and impactful way”. 

The Government response will no doubt be welcomed by the sector, which has faced many challenges, particularly financial, as a result of the coronavirus pandemic. We set out below some of the most significant recommendations which were approved.

Alignment of rules around amending governing documents for corporate and unincorporated charities

The Bill contains a new statutory power which will allow unincorporated charities to make any amendment to their governing document, subject to obtaining Charity Commission consent to certain “regulated alterations” (including amendments to objects, trustee benefits or the dissolution clause). This essentially means that the rules for unincorporated charities are being aligned with the existing regime for charitable companies and CIOs.

At present most unincorporated charities have to obtain a cy-près scheme from the Charity Commission in order to amend their objects, which can be a costly and time-consuming process. This statutory power will therefore significantly simplify object changes for unincorporated charities. Conversely, “regulated alterations” will be more closely monitored under the new Bill meaning the rules for charitable companies and CIOs are proposed to become more rigid.

Wider pool of professionals can advise on charity land disposals

Currently, only qualified surveyors are permitted to advise trustees on charity land disposals, whereas it is proposed that a wider range of professionals should be able to assist. This includes fellows of the National Association of Estate Agents and fellows of the Central Association of Agricultural Valuers. The Bill also clarifies that appropriately qualified trustees and employees may provide this advice to their charity (clearing up an area of previous uncertainty).

New flexibility in relation to permanent endowment

The recommendations simplify the criteria for using some of the powers in ChA 2011 to release permanent endowment restrictions. There will also be a new power for charities to borrow from their permanent endowment by resolving to spend up to 25% of its value, subject to a requirement to repay the expenditure within 20 years (and to have a repayment plan in place).

Automatic trust corporation status

Trust corporation status is required of corporate charities in certain circumstances, including where there is a single outgoing corporate trustee of charity land. Currently, trust corporation status is conferred in limited statutory circumstances, or by requesting a scheme from the Charity Commission. However, under the Bill, trust corporation status will be automatic for all existing and future corporate charities in respect of any charitable trust of which they are (or become) trustee. We expect that this change will be well received by sole corporate trustees and their advisors.

Charity mergers

It is common practice for a “shell charity” to be retained post charity merger to catch certain legacies expressed to be for the former charity. However, this will no longer be necessary where charities have merged and the merger is registered on the Charity Commission’s specific register of mergers. The charity will be deemed to exist for the purposes of establishing whether a gift has been made to it. This will reduce the administrative burden for merged charities (of having to maintain a predecessor as a shell charity).

Next steps

The changes anticipated by the Bill are significant and should simplify the operation of charities by removing administrative and legal issues which have historically burdened those in the sector. The Government has committed to implementing the Bill “when Parliamentary time allows”, and it is already progressing through the House of Lords. At a time where the value of charities to their beneficiaries and communities has never been greater, we are hopeful that sufficient Parliamentary time will be found for the passing of the Bill in the coming months.