Trusts (Capital and Income) Act 2013

The return made on investments held as permanent endowment has, to date, been subject to special rules – any return classed as “capital gain” had to be added to the capital of the fund and any return classed as “income” was available to the charity to spend on furthering its charitable objects.

As a result, permanent endowment funds had to be invested to ensure a balanced return was achieved between capital gain and income. As this can result in a lower overall rate of return from the fund, trustees could apply to the Charity Commission for a “total return” order to enable trustees to apportion, from a combined pool of capital growth and income, how much of the total return generated should be added to the fund’s capital and how much should be classed as income to be spent by the charity on its charitable purposes.

The good news is that trustees of permanent endowment funds will no longer need to apply to the Charity Commission for a total return order once the Trusts (Capital and Income) Act 2013 comes into force, as it will permit trustees to pass a resolution to adopt a total return investment policy (subject to Charity Commission’s regulations yet to be published). The date on which this section of the Act will be brought into force will be announced following the Charity Commission’s consultation on its draft regulations later in 2013.

IBB’s specialist charity lawyers have a wealth of experience in delivering practical commercial advice to charities and not for profit organisations and those who work with them. Contact our charity law team here, call 01895 207809 or email charities@ibblaw.co.uk.