14 February 2013

Trusts (Capital and Income) Act

The Trusts (Capital and Income) Act 2013 allows the trustees of charities with permanent endowments to treat the capital appreciation on those assets in the same way as income, without having to obtain the approval of the Charity Commission.

The general rule has always been that charity trustees with investments which constitute a permanent endowment are required to treat any increase in the value of the capital as an addition to the capital and are required to spend any income generated.

This rigid approach created an issue for charities with large endowments because income could not be used to reduce the effect of capital losses nor could capital gains be spent.

The Charity Commission had the authority to make an order allowing the charity trustees to pursue total return investment.

With the changes brought in by the Act, trustees will have greater flexibility in managing funds and will be allowed to focus on the overall return on investments rather than gauging a balance between pursuing capital growth and income generation, and will be able to do so without having to seek permission from the Charity Commission.

Almost 14,000 charities will be affected by the changes.

The Charity Commission is planning a consultation later this year on the rules of investment under which charities operate.

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