Permanent endowment: rules for charities
When you can spend, sell or transfer 'permanent endowment' - money or property given to your charity with conditions on how it can be used.
About permanent endowment
‘Permanent endowment’ is money or property that was originally meant to be held by a charity forever. This is usually set out as a restriction in the charity’s governing document.
Permanent endowment can be:
Example: a charity was set up with a donated lump sum of money. The donor specified that the money must be invested to provide an income for the charity and only the income could be spent.
The law allows charities to spend permanent endowment in certain circumstances but you may need to get permission from the Charity Commission.
Company charities can’t hold permanent endowment, but they can transfer permanent endowment to a ‘shell’ charity that they own. The company charity must accept that endowed property or assets must be:
- used for the original purpose for which it was held in trust
- kept separate from its general or corporate assets
Get legal advice if you think money or property you want to spend or sell is permanently endowed:
When to spend permanent endowment
Only consider spending permanent endowment if the trustees agree it’s necessary to help your charity carry out its purposes more effectively. For example, if your charity:
- needs money to set up a new project
- has outgrown its existing premises and needs to sell them to buy new
When to get the Charity Commission’s consent
Many charities can spend part or all of an investment held as permanent endowment. But you must apply for the commission’s consent if:
- your charity’s income is above £1,000 and
- the whole of the permanent endowment is worth more than £10,000
You don’t need the commission’s consent if the permanent endowment wasn’t given to your charity – for example if your charity created the permanent endowment itself.
Money, property or land given to your charity on the condition it’s used to help it meet its purposes is a ‘functional endowment’. Land or property held under this type of functional trust is usually called ‘designated’ or ‘specie’ land or property.
If you want to sell designated land without replacing it, you’ll have to get the commission’s consent. You’ll have to explain to the commission why this would be in your charity’s best interests.
How to get the commission’s consent
Use the commission’s online form. You need to provide:
- the current market value of the endowment
- your charity’s income
- details of the meeting in which the trustees passed a resolution to spend the permanent endowment
- a copy of the resolution including the reasons for spending the permanent endowment
NHS charities can’t use this form – use the commission’s enquiry form instead.
How to transfer permanent endowment to another charity
Your governing document may say that your charity can transfer permanent endowment to another charity or charities with similar purposes. If you’re transferring assets to several charities, each receiving charity must have at least one purpose that is similar to yours. Taken together, the purposes of the receiving charities must be substantially similar to yours. Permanent endowment assets continue to be permanent endowment after they transfer. The trustees must also agree that the transfer lets the endowment meet the purposes for which it was originally held.
If your governing document doesn’t allow this, the Charities Act allows you to transfer most types of asset if:
- your charity’s income is under £10,000 and
- it’s ‘unincorporated’ (not a charitable company or CIO)
Transfer assets using the Charities Act provisions as follows:
- Hold a trustee meeting attended by enough trustees to make a decision.
- Discuss the transfer - you need to agree that it’s the right thing to do, that any receiving charity is suitable and all other requirements are met.
- Hold a vote - at least two thirds of the trustees voting must be in favour of the transfer (don’t count people who abstain from voting).
- Decide how the assets will be transferred (especially if transferring to more than one charity) and how you will make sure they’re used for similar purposes by the receiving charity.
- Ask the commission to approve the resolution and confirm to it that the purposes of the receiving charity or charities are substantially similar to yours.
You can transfer assets from an existing CIO to another CIO by:
- amalgamating with one or more CIOs to form a new CIO or
- transferring assets to an existing CIO
To do this, pass a resolution under the Charities Act and contact the commission to get approval. If the commission approves the resolution, all the property, rights and liabilities of the transferring CIO (including any permanent endowment) are automatically transferred to the receiving CIO.
How to ask the commission to approve a transfer power resolution
Complete the commission’s online form if:
- the market value of the whole endowment is less than £10,000
- your charity has an income of less than £1,000
- there isn’t a restriction in your governing document that says the land being transferred must be used to further your charity’s purposes (‘functional endowment’)
Charitable companies can’t hold permanent endowment. But you can use this form to tell the commission about a transfer resolution for permanent endowment your charity holds in a ‘shell’ charity that meets these criteria.
You will need to provide:
- details of what you want to transfer and who to
- HM Land Registry reference number (if transferring registered land)
- details of each charity’s trustees, confirming they have been properly appointed and are able to authorise the transfer
- confirmation that any third party funders agree to the transfer of grant funds or physical assets in which they retain an interest
- the governing document of any receiving charity which isn’t registered with the commission
NHS charities can’t use this form – use the commission’s general enquiry form instead.
What happens next
If your resolution meets the legal requirements, the commission will tell you when it can come into effect and the assets can be transferred. It must do this within 60 days.
If it doesn’t meet the requirements, the commission will explain why it objects to the resolution and what you need to do before the assets can be transferred.
Published: 23 May 2013
Updated: 18 December 2014
- Clarifications including rules for companies and charitable incorporated organisations (CIOs)
- First published.