‘Breaking News’ on the Charities Act 2022 ex-gratia provisions

Implementation of the Charities Act 2022 will finally be completed at the end of the month, with the commencement of the long-awaited new ex-gratia provisions. A Statutory Instrument has now been made to bring the provisions into force on 27 November. 

Currently, trustees must obtain Charity Commission authority to make an ex-gratia payment. This will only be given where trustees satisfy the Commission that, although they have no legal obligation to make the payment, they consider themselves under a moral obligation to do so. A typical case is where a charity receives a gift under a Will but there is evidence that the testator was about to change their Will to leave part of the property to a relative instead. 

Under the changes being introduced, charities will be able to make small ex-gratia payments without the Commission’s authority, provided they fall within given financial thresholds. The thresholds set the maximum amount that can be paid on any occasion by reference to the gross annual income of the charity. For charities with income below £25,000, the maximum is £1,000. The highest threshold applies to charities with income of over £1m, where the maximum is £20,000. 

The new provisions also introduce an objective assessment of when a moral obligation exists.  This will apply in all potential ex-gratia situations, both under the rules for small payments and those which require Charity Commission authority. Under the new rules, an ex-gratia situation arises where there is no legal power to make the payment, but “in all the circumstances the charity trustees could reasonably be regarded as being under moral obligation” to do so. This change to an objective test for the existence of a moral obligation will allow trustees to delegate ex-gratia decisions, although the charity trustees will remain responsible for any decisions made.

The delay in bringing the new ex-gratia powers into force was caused by concern that they should not apply to the cultural assets held by major national museums and galleries. The Statutory Instrument therefore provides that the powers are not brought into operation in relation to objects in the collections of various listed institutions, such as the British Museum and Victoria and Albert Museum. The Charity Commission’s authority will continue to be required in those cases. The institutions concerned will, however, be able to take advantage of the new powers in relation to non-collection assets. 

Where an application has already been made to the Commission for authority under the existing rules, the application will continue to be dealt with under existing rules.

For further information on this subject, please get in touch with your usual contact at Stone King, or our Charity & Social Enterprise Team.