Permanent Endowments

The Charities Act 2022 received Royal Assent on 24 February 2022. Its provisions relating to permanent endowments are effective as from 14 June 2023. By reforming the previous legal restrictions on what a charity may do with any permanent endowment, the Act gives more flexibility to charity trustees. “Permanent endowment” means property that a charity holds that it is not permitted to spend as though it were income. Capital in the form of cash, investments, and land can all constitute permanent endowment. Restrictions on expenditure of such assets are often created by donors wishing to provide a charity with a lasting gift that will endure into the future.

The Act has amended the previous definition of “permanent endowment” to make it easier and clearer to identify what property is covered by that expression. It also reformed and simplified rules as to how and in what circumstances a charity needs to obtain Charity Commission consent to its use of permanent endowment property.

Charity trustees should review their charity’s assets and funds to determine what property is and is not “permanent endowment” as defined by the Act. They should then consider the Act’s provisions that expanded the previous powers to expend, and create new powers to borrow from, any permanent endowment assets or funds (without Charity Commission consent), in order to see how use of those powers can help their charity meet its charitable purposes more effectively.

In some cases, the cost of administering an asset or fund might be disproportionate to the income that it produces, such that spending the fund is an attractive option. In other cases, a charity might wish to meet a pressing need but be unable to do so where its general resources are insufficient unless it can spend or borrow from its permanent endowment assets or funds. If a charity is considering using a permanent endowment, it might find that where it would not have been able to do so under the law prior to the relevant provisions of the Act coming into effect, it is now possible to do so from 14 June 2023, the date of implementation of the relevant provisions of the Act. 

This page only outlines some of the changes that the Act makes to the current rules about permanent endowment, and so charity trustees should familiarise themselves in detail with the changes made by the Act in order to see how to make best use of their charity’s permanent endowment assets and funds within the legal parameters that will now apply, following the implementation of the relevant provisions of the Act.