The New Charities Bill: Endowment Changes And Opportunities In Science Innovation

• Published date: 06 December 2021
• Subject Matter: Corporate/Commercial Law, Food, Drugs, Healthcare, Life Sciences, Charities & Non-Profits , Biotechnology & Nanotechnology
• Law Firm: Withers LLP
• Author: Mr Hugo Walford and Sharmela Kalmer

This article examines the proposed changes to be introduced by the new Charities Bill relating to endowment funds, and how these might unlock opportunities for charities in science innovation.

Charities Bill 2021

At the time of writing, the new draft Charities Bill (the 'Bill') is passing through the House of Lords, having reached the Committee stage. The Bill will amend the Charities Act 2011 in a number of ways.

Many charities hold funds that are in some way restricted in terms of how they can be used. Some hold what is known as 'permanent endowment', which legally obliges the capital comprising the fund to be invested and only the income generated from the capital can be spent for the purposes of the fund.

Changes proposed

The Bill proposes to alter charity law as it relates to permanent endowment in various important ways, including by introducing new powers for trustees to:

• borrow monies from a permanent endowment fund without Charity Commission's approval, but subject to provisos (including a borrowing limit of 25% of the value of the fund preparation of a repayment plan and a requirement to repay within 20 years); and
• make social investments from a permanent endowment fund where a financial return is uncertain or unlikely (subject to a "total return" approach having been adopted - i.e. where any increase in the capital value of investments can be expended as well as the income generated).
• The trustees of permanent endowment funds cannot usually undertake either of the above actions.

Effect of proposed changes

New opportunities will arise for trustees to utilise permanent endowment funds for the increased benefit of beneficiaries and the more effective achievement of charitable objectives. Trustees will be able to consider:

• borrowing from a permanent endowment fund, for example in response to an opportunity or need (with the added benefit of avoiding the need to pay a commercial rate of interest); and
• the social impact of investing "total return" permanent endowment funds, even if projected financial returns are low or negligible - for example, supporting cutting-edge, untested or otherwise financially uncertain research which is relevant to the fund's charitable purposes. (It is worth noting that this power will be subject to further regulations by the Charity Commission).

These are noteworthy developments, not just for the many charities who already hold permanent endowment funds (some of significant value), but also for those that do not...