The Charities Act 2022: Permanent Endowment

In this blog, Mark Lewis, a partner at Lodders and head of our Charity Law team, explains how recent changes will impact charities.

The Charities Act 2022 has been specifically designed to help charities and to simplify matters for those acting as their trustees. The Act does so by providing legislative updates that guide charitable organisations on matters such as permanent endowment.

Read our latest update on the implementation of the Act here.

What is permanent endowment?

“Permanent endowment” is essentially property which the charity must keep rather than spend.

What are the key changes affecting permanent endowment funds?

The Charities Act 2022 is introducing statutory powers, which:

1. Simplify the way charities can spend permanent endowment.

The 2022 Act gives charities the power to spend up to £25,000 of permanent endowment funds without permission from the Commission.

If the charity wishes to spend over £25,000, the Commission’s permission is still required but the time for the Commission to respond has been reduced from 3 months to 60 days.

The power to spend permanent endowment is available to corporate charities too, which under the changes already introduced may now hold corporate property.

2. Allow trustees to borrow from permanent endowment.

This is a new power to allow charities to borrow up to 25% of the value of their permanent endowment fund without permission from the Commission.

Any amount borrowed must be repaid within 20 years. This means there needs to be a repayment plan so that the trustees can be satisfied that the amount borrowed can be repaid.

3. Allow trustees to use permanent endowment to make social investments from permanent endowment.

This is a new power for charities who have opted into investing on a total return basis, which allows them to make social investments with a negative or uncertain financial return. However, it is subject to any new regulations the Commission makes to govern this use of funds.

The Charities Act 2022 also helps to clarify the definition of “permanent endowment”, which is a technical but welcome change.

What does this mean for your charity?

All charities should review their portfolio to remind themselves of their permanent endowment funds.

The new provisions may assist charities to use those funds to support their current activities when previously they could not easily do so or could not do so at all.

When will the Charities Act 2022 come into effect?

The implementation of the Act is taking effect on a phased basis, which commenced on 31 October 2022, with the second phase implemented on 14 June 2023 (to include the above) and is finally due to complete in Autumn 2023.

To find out more about how the Charities Act 2022 could benefit your organisation, visit our blog.

If you require further advice in relation to this matter, please contact Mark Lewis.