- 19 Jan 2023
- 4 min read
Charities Act 2022 – what to expect in 2023 (part 1)
The Charities Act 2022 (the “Act”) received Royal Assent on 24 February 2022. This was introduced following the Government’s response in 2021 to the Law Commission Report – “Technical Issues in Charity Law” (which was published back in 2017). The Act is designed to address some technical legal obstacles and assist with the effectiveness of the administration of charities. Some of the provisions came into force in late 2022, however many are due to be implemented throughout 2023.
We will be looking at what the charity sector can expect to be implemented during the course of 2023. In the first part of this article we are focussing on the provisions that are expected to come into force in Spring 2023.
In accordance with the Charity Commission’s implementation plan we expect the following provisions will come into force in Spring 2023:
1. Permanent endowment (sections 9 to 14 and 35(a))
Permanently endowed assets are not always easy to identify and can cause confusion and uncertainty particularly in charities that have been around for many years. The Act introduces a new simplified definition of permanent endowment:
“property is “permanent endowment” if it is subject to a restriction on being expended which distinguishes between income and capital.” (section 9 of the Act).
This is slightly clearer than the current definition which provides that a charity will be treated as having permanent endowment unless all property held by the charity can be expended for its charitable purposes without distinction between capital and income, although there is still scope for some ambiguity and if trustees are not sure whether they hold permanent endowment and/or what assets may be subject to restrictions, they should seek appropriate advice and assistance.
In addition, the Act introduces some new flexibility for use of permanent endowment, including:
- a new statutory power to borrow up to 25% of the value of the endowment fund (adjusted for any previous borrowing) provided it is expedient in the best interests of the charity and subject to any borrowing being repaid within 20 years. These powers may be restricted or excluded by a charity’s constitution; and
- a new limited power to permit social investment of permanent endowment that may give rise to a loss. This is restricted to charities investing on a total return basis and subject to Charity Commission regulations.
2. Charity land (sections 17 to 23)
There are several changes relating to charity land which will be of particular interest to anyone dealing with dispositions or mortgages of charity land.
The key changes are:
- Widening the pool of professional advisors who can advise on a proposed disposition of land.
The Act amends the current requirement, having to obtain a qualified surveyors report when disposing of charity property, to needing to obtain advice from a ‘designated adviser’. This advice could be from a charity trustee or employee of the charity where considered appropriate. This will be of significance to anyone dealing with charity land dispositions and will hopefully assist in simplifying the process and reducing the timeline and costs.
- Interestingly, the statements required to be included within documents effecting land dispositions is amended by virtue of section 23 of the Act, and no longer includes a requirement for a trustees’ personal certificate (removing the current sections 122(3) and 125(2) of the Charities Act 2011). This will be of great benefit to corporate charities who will have previously had to sign in both a corporate and personal capacity when executing a document granting a mortgage or disposing of charity property.
- Amending the exceptions: the exceptions to when sections 119 to 121 Charities Act 2011 apply have been amended to:
- extend to dispositions by a liquidator, receiver, mortgagee or administrator;
- remove the Universities and Colleges Estates Act 1925 exception; and
- reframe the exemption when the transaction is a charity-to-charity disposal.
The exceptions relating to the legislative provisions in mortgages have also been amended to include reference to mortgages granted by a liquidator, receiver, mortgagee or administrator.
- The definition of ‘connected person’ is amended by virtue of the Act to permit employees to benefit from a fixed term tenancy (for a period of 1 year or less) for use as residential accommodation.
3. Charity names (sections 25 to 28)
The Act extends the Charity Commission’s power to require a change of name to apply to both official names and working names. If the Commission directs a change, the trustees must ensure the change occurs within the timeframe given by the Commission. The conditions under which a name change may be required have been expanded to include where the name, or a working name, is “the same as, or in the opinion of the Commission too like, the name or a working name of another charity”.
The Act also gives the Commission the power to delay the registration of a charity that has been given a direction requiring the change of name, until that change takes place.
4. Connected persons (section 38 and 39)
In addition to the amendment to the definition of ‘connected person’ in relation to charity land (as above), the Act also makes the following changes to the definition of ‘connected persons’:
- removing the reference to an illegitimate child; and
- giving the Secretary of State the power by regulations, to amend the definition of ‘connected person’ for the purposes of any provision of the Charities Act.
5. Other changes
It is proposed that the following provisions of the Act will also come into force in Spring 2023:
- amendments to the Universities and College Estates Act 1925 (section 24 and schedule 1); and
- part of section 40 and schedule 2: minor and consequential amendments.
It is expected that the following provisions will come into force in Autumn 2023:
- Charity constitutions (sections 1 to 3)
- Powers relating to appointments of trustees (section 29)
- Remuneration of trustees (section 31)
- Charity mergers (sections 33, 34 and 35(b))
We will explore these in further detail and what impact they may have for the sector in the second part of our article on the Act and what to expect in 2023
Sections 15 and 16 of the Act relating to ex-gratia payments have been listed as provisions ‘that are under further consideration prior to commencement’ on the Charity Commission’s implementation plan webpage. These provisions were initially anticipated to come into force in Autumn 2022.