Defining charitable trusts

A charitable trust is a form of express trust set up for a particular purpose. To be valid, the trust’s purpose (ie, what it is set up to achieve) must be charitable and be for the public benefit.

Charitable purpose

A charitable purpose, according to the Charities Act 2011, includes things that contribute to:

• relieving poverty;
• education;
• religion;
• health;
• saving lives;
• citizenship or community development;
• the arts;
• amateur sport;
• human rights;
• religious or racial harmony;
• the protection of the environment;
• animal welfare;
• the efficiency of the armed forces, police, fire or ambulance services.

Public benefit requirement

Under the Charities Act 2011, each of a charity’s purposes must be for the public benefit. This means a purpose must be beneficial and any detriment or harm that results from the purpose must be outweighed by the benefits. The test for this must be evidence-based and not based on personal views.

To satisfy the ‘public’ aspect of the test, the purpose must benefit the public in general, or a sufficient section of the public. What counts as a ‘sufficient section of the public’ differs from purpose to purpose.

The purpose must also not give rise to more than incidental personal benefit. Personal benefit would be ‘incidental’ where, having taken into account both its nature and its amount, it is a necessary result or by-product of carrying out the purpose.

For a purpose to be charitable it must usually satisfy both the benefit and the public aspects. However, where the charitable purpose is for the relief (and in some instances the prevention) of poverty only the benefit aspect need be satisfied.

Charitable trusts must not be run for profit and all of their purposes must be charitable: they cannot be charities if they have some purposes that are charitable and some that are not. They are also expected to refrain from campaigning for political or legal change, although raising political issues in a neutral way is deemed acceptable.

Charitable trusts enjoy a number of benefits including being exempt from income tax, capital gains tax and stamp duty. They are also entitled to 80 per cent relief on non-domestic rates. Additional gift aid can be claimed on donations made, and gifts made are exempt from inheritance and capital gains tax. Charitable trusts are also exempt from the rule against perpetuities which applies to other trusts – this means property can be given for an indefinite period to a charitable purpose trust.

Trustees of a charitable trust generally have more freedom than other trustees as there is no relationship between the trustees and the beneficiaries; beneficiaries are also not allowed to sue the trustees. Instead, the beneficiaries are represented by the Attorney General for England and Wales who appears on behalf of the Crown.

Charitable trusts are regulated and promoted by the Charity Commission which also provides advice and opinions to trustees on administrative matters. If mismanagement or maladministration is found by the Commission it has the power to remove trustees, appoint new ones or temporarily take the trust property itself to prevent harm being done. The High Court also has the power to administer schemes directing the function of the charity if problems with a charity arise.