Trustees: adopting a total return approach to investing a charity’s permanent endowment

Section 4 of the Trusts (Capital and Income) Act 2013 came into force on 1 January 2014 and amended the Charities Act 2011.  It gives permanently endowed charities in England and Wales the power to adopt a total return approach to investment without seeking prior approval from the Charity Commission.

Put simply, a total return approach means that trustees can manage their investments to make the most of the return they generate, regardless of whether this comes from dividends, interest or capital gains, and are not required to produce a return which is balanced between the interests of income and capital.  It is the level of the investment return that is important, rather than where the return comes from.

Following a consultation last year the Charities (Total Return) Regulations 2013 also came into effect on 1 January 2014.  The Regulations set out the rules that permanently endowed charities must follow to operate a total return approach.  The Charity Commission has also issued guidance on the application of the Regulations.

This will be particularly helpful for grant-making charities and other charities with permanent endowment assets.

For more information please contact Hugh Welch or 0191 211 7903.