The Charities Bill 2021-22 received royal assent on 24th February 2022 and is now law as the Charities Act 2022 (the Act).
The overall purpose of the Act is to implement a majority of the recommendations made by the Law Commission in its report, Technical Issues in Charity Law, which was published in 2017. The changes made by the Act seek to simplify areas of charity law and to make the process of running a charity easier for the trustees.
Amending governing documents
The Act aligns the rules on making changes to the purpose of a charity whether it is structured as a charitable incorporated organisation (CIO), a charitable company or an unincorporated charity. This will reduce confusion among trustees about the process to follow.
The Act will also introduce other, more general powers of amendment, which will, as far as possible, align the rules for amending the governing document of an unincorporated charity with those of CIOs and charitable companies.
The rules regarding the use of a charity’s permanent endowment assets are complicated. The amendments being made by the Act should be helpful in broadening the use to which charities can put their permanent endowment assets.
The power to spend permanent endowment capital under the Charities Act 2011 is being amended in various ways including to make it clear that the power applies to all types of charity including charitable companies and CIOs. It has also been made clear that Charity Commission consent to the spending of permanent endowment capital will only be needed if the value of the permanent endowment assets in question is over £25,000.
The Act also introduces a new statutory power allowing the trustees to borrow up to 25% of the value of permanent endowment assets without Charity Commission consent (subject to recoupment within 20 years). This is a welcome inclusion as it should allow charities to utilise their permanent endowment assets without having to release them from the protection permanent endowment provides.
For some charities, especially long running charities, the issue of trustee appointment can be challenging. Sometimes the correct rules and procedures are not followed and questions then arise regarding who are the trustees of the charity.
The Act provides the Charity Commission with the power to ratify the appointment of a charity trustee.
Additionally, the Act also broadens the powers for remunerating charity trustees and those connected to them when they provide goods and services to the charity.
A major concern for charities that receive a significant amount of legacy income is what will happen to that income if the charity merges with another charity. This problem can dissuade unincorporated charities from becoming CIOs as they may miss out on legacy income if donors do not change their Wills to reflect the incorporation/merger.
The Act has broadened the rules that that apply to merged charities to ensure that all legacies to a charity which has merged and is included on the register of mergers will be treated as legacies to the new charity even if the wording of legacy states that the gift will only take effect if the charity is still in existence at the date the gift takes effect. Similar rules also apply if CIOs merge or if a CIO transfers assets to another CIO.
The Act also makes changes in other areas of charity law including:
• the regime for mortgaging and disposing of charity land;
• increasing the power to make “small” ex gratia payments without Charity Commission consent;
• relaxing rules on how to deal with failed fundraising appeals; and
• the issue of charity names.
Unfortunately, even though the Act is now law, all of the changes set out above will not come into effect until the Secretary of State passes further legislation. It is hoped that all of the changes will be in effect by the end of 2023.
Please contact Clare Morison if you have any queries regarding any of the information set out above.