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We consider the current charity law position in relation to ex gratia payments and proposed changes under the Charities Act 2022.

What is an ex gratia payment?

An ex gratia payment occurs where:-

1. Charity trustees believe they have a moral obligation to make for the benefit of someone who is not a beneficiary of the charity:-
   1. a payment from charity funds;
   2. a transfer of a non-cash asset; or
   3. a waiver of a legal right of the charity to receive money or non-cash asset.
2. There is no legal obligation to make the payment; and
3. The charity trustees cannot justify the payment as being in the interests of the charity or its beneficiaries

Ex gratia payments in legacy matters

In practice such payments can arise in legacy matters. An example could be where a charity receives a larger gift than a testator intended because the testator was amending their will and it was not completed correctly or in time (and there is no claim against the relevant solicitor).

In the event the charity wishes to make an ex gratia payment it will apply to the Charity Commission (“Commission”). The application must be from the charity trustees, i.e. they cannot delegate the decision. If the Commission decides that the decision is within the range of decisions of a reasonable body of charity trustees it will authorise the payment. If it is not convinced, or if the evidence is unsatisfactory, this will be refused. If the Commission requires guidance it should refer to the Attorney General (under whose supervision it exercises this power),

Although there is no de minimis, the Commission have indicated that where an ex gratia payment is under £1,000, and the trustees believe it would be administratively impractical to apply for authorisation, it is unlikely to challenge this decision.

It is also notable that, at present, statutory charities are not able to make ex gratia payments, as doing so would generally fall outside statutorily prescribed “permitted dispositions” and the Attorney General has no power to authorise ex gratia payments prohibited by statute.

What are the proposed changes to the Charities Act 2022?

The Charities Act 2022 seeks to make several key changes to the regime surrounding ex gratia payments:

• Small payments- To give charity trustees the power to make small ex gratia payments without authorisation depending on its income in the previous financial year. Note the amounts are per payment, not per year.

• Trustee delegation- Enable trustees to delegate the decision to make ex gratia payments. This will be of particular interest to charities where legacy teams are involved in these decisions, and for larger charities where use of charity trustee time for a large number of such decisions is unrealistic.
• Statutory charities- To give statutory charities the ability to make the decision to make ex gratia payments.

Deferment of proposed changes

The above provisions were due to come into force in autumn 2022. However, it was realised the amendments might allow museums to restitute items from their collections on moral grounds.

As this was not envisaged or debated by parliament during the passage of the Charities Bill, the passage of the relevant sections have been put on hold pending further consideration.

To date we have no further information when that will be, which is undoubtedly a shame for non-museum charities for whom the changes would likely have made decision making in relation to ex gratia payments more efficient.

Our charities team can help

If you need some guidance and support to ensure you’re prepared for when the proposed changes come into effect, our dedicated legacy team can help.