The implications of the Charities Act 2022 for trustees

The 2022 Act contains a number of changes to charity law aimed at smoothing and simplifying the processes trustees often use in the day-to-day management of their charity.

Its receipt of Royal Assent is therefore welcomed by charities and their trustees across the sector, and has been called a “moment for celebration” by the Charity Commission.

What are the key changes?

1. Relaxed requirements on the disposal of property. Rather than having to engage a RICS-qualified surveyor to produce a detailed report on a property to be sold, trustees may now take advice from a wider pool of surveyors, and where the charity has a suitably qualified trustee on its board, they need not engage external advice at all.

Further, the extent of the report can now be made proportionate to the size of the transaction in question, and need only cover four aspects of the property: its market value, any work that would improve the price, the marketing recommended by the surveyor and any other relevant recommendation.

2. A more straightforward process to amend the charity’s governing document. The Charities Act 2022 seeks to harmonise the rules for charities when amending their constitution. Regulated amendments (i.e. changes to the charity’s objects, trustee benefit provisions and dissolution provisions) will still require Charity Commission approval, but the Commission will now apply the same test for all charities wishing to make such amendments. This should make the process quicker and easier and will be of particular help to unincorporated charities.

3. Greater flexibility in the use of permanently endowed funds. Previously, where a charity held permanent endowment (i.e., funds or property to be held by the charity forever), trustees faced a number of restrictions in their ability to borrow or invest using those assets.

Under the 2022 Act, trustees are now permitted to borrow up to 25% of the value of their charity’s permanent endowment, and to use permanently endowed funds to make social investments with a negative or uncertain return (rather than being required to invest only for the best financial return).

4. Relaxed rules around ex gratia payments. Ex gratia payments are payments by charities which do not themselves further the charity’s objects, but which the trustees feel obliged to make. A classic example is where an intended gift in a Will has failed, but the trustees feel obliged to honour the gift.

Previously, trustees could only make such payments with the Commission’s consent, but the Charities Act 2022 permits trustees to make payments up to a certain amount without Commission approval (between £1,000 and £20,000, depending on the charity’s annual income). It also permits trustees to delegate this decision to staff.

5. The ability to pay trustees for goods provided to the charity. Previously, trustees could not receive remuneration for the supply of goods to their charity without Commission consent. Under the 2022 Act, where it is in the best interests of the charity to do so (for example, if the trustee can provide them more cheaply), charities will be able to pay their trustees to provide the goods they need to further their purposes.

When will the changes come into effect?

Under s41 of the Charities Act 2022, the Act is stated to come into force on the date on which it is passed. The Act as a whole is therefore in force as of 24 February 2022. However, many of the provisions in the Act will only come into force once the necessary secondary legislation is passed in order to implement them.

In practice, the implementation of the 2022 Act will happen on a staggered basis over the next 12 to 18 months, as the Charity Commission will update its Guidance to reflect each part of the Act, and consult with specialists as necessary.

We will provide updates on the implementation of the 2022 Act in the coming months. In the meantime, the Charities Act 2022 can be read in full here.

If you have any queries about the topics discussed above, or there are any other issues we can help you with, please do get in touch with Ben Brice or Laura Sherratt.