Governance — United Kingdom

On 7 March 2024 the second tranche of Charities Act 2022 provisions entered into force in England and Wales. The changes simplify requirements for disposing of charity land, modernize permanent endowment powers, and clarify when charities can pay trustees for goods or services. These reforms conclude a multi-year legislative process that began with the Law Commission's Technical Issues in Charity Law report, addressing practical governance challenges that charity trustees have faced under the previous legal framework. Organizations operating charities in England and Wales should update their governance policies to reflect these important changes.

Legislative Background and Context

The Charities Act 2022 received Royal Assent in February 2022 but implemented its provisions in phases to allow charities time to prepare. Phase one changes took effect in late 2022 and early 2023, addressing ex gratia payments, charity names, and constitutional amendments. Phase two represents the more significant reforms affecting property transactions, investment powers, and trustee remuneration. The Charity Commission for England and Wales published updated guidance and revised model documentation supporting setup. Charities registered with the Charity Commission and excepted charities operating in England and Wales fall within scope of these changes.

Land Disposal Reforms

Trustees can now instruct a wider group of advisers for land valuations, with refreshed requirements for written reports and board approvals. Previously, charities disposing of land were required to obtain advice from a chartered surveyor, creating barriers for smaller charities and transactions involving modest property values.

The 2024 changes allow trustees to obtain qualifying advice from any person reasonably believed by the trustees to have the ability and practical experience to provide competent advice on the disposal. The written advice must address whether the proposed terms are the best that can reasonably be obtained, consider whether advertising the disposal is appropriate, and recommend any conditions that should attach to the transaction. Trustees must be satisfied the terms accord with the advice before proceeding, and board meeting minutes should document consideration of the written advice and trustee decision-making.

Permanent Endowment Powers

Charities gain new powers to borrow from permanent endowment and invest in social investments, subject to board resolutions and reporting requirements. Permanent endowment represents capital that must be held in perpetuity, with only income available for charitable purposes. The new borrowing power allows trustees to use permanent endowment capital on a temporary basis, providing flexibility for property purchases, renovation projects, or other capital needs.

Repayment terms must be reasonable and documented, with the full amount returned to permanent endowment within a reasonable period. Social investment powers enable trustees to allocate permanent endowment to investments that generate both financial returns and social impact aligned with charitable purposes. Trustees must document investment rationale, expected returns, and oversight arrangements when exercising these new powers.

Trustee Payment Procedures

Updated provisions clarify procedures for paying trustees for services, reinforcing conflict management and documentation requirements. Charity trustees generally serve without remuneration, but circumstances exist where paying trustees for professional services makes sense for the charity. The 2024 changes provide clearer authority for trustee payment while establishing safeguards against conflicts of interest.

Payment arrangements must be documented in writing, specifying services to be provided and remuneration terms. Remaining trustees (excluding the paid trustee) must be satisfied that payment is in the charity's best interests and that the amount is reasonable. Conflicts registers should record payment arrangements, and annual reports should disclose trustee remuneration. Charities should review existing trustee payment arrangements against updated requirements and refresh documentation as needed.

Connected Person Transactions

The Act clarifies requirements for transactions between charities and connected persons, including trustees, employees, and their relatives. Connected person transactions require heightened scrutiny to protect charities from exploitation and ensure resources serve charitable purposes. Disclosure requirements help beneficiaries, regulators, and the public understand relationships that could influence charity decisions. Charities should maintain updated connected persons registers and implement approval procedures for transactions with connected parties.

Governance Policy Updates

Revise property governance policies to reflect adviser eligibility, board approval thresholds, and reporting obligations. Document decision-making frameworks for permanent endowment borrowing or social investments, including risk assessments and repayment plans. Update conflicts of interest registers and agreements covering trustee payments for goods or services. Training for trustees should address the significant changes and updated procedures. Board induction materials and trustee handbooks should be refreshed to reflect current legal requirements.

Regulatory Relationship

The Charity Commission will monitor compliance with updated requirements through annual return filings, serious incident reports, and regulatory inquiries. Charities experiencing governance challenges related to the new provisions should seek Commission guidance early. Legal advisers specializing in charity law can assist with complex transactions and governance arrangements requiring careful structuring under the updated framework.