Charity Governance
Permanent Endowment: What Trustees Can and Cannot Spend
Permanent endowment is capital your charity holds rather than spends, but the Charities Act 2011 gives trustees a way to release it. The route turns on the value of the whole fund, not the sum in question: at £25,000 or less trustees resolve alone, and above it the Charity Commission must concur, with 60 days to notify its decision.
Permanent endowment is property your charity must keep rather than spend, but the position is not absolute. Sections 281 to 284D of the Charities Act 2011 give trustees a statutory power to release it, and the route turns on one number: the market value of the whole endowment fund. At £25,000 or less the trustees resolve on their own. Above £25,000 the Charity Commission has to concur, and it has 60 days to answer once the resolution reaches it.
These provisions in their current form commenced on 14 June 2023, so guidance written before then describes an older test. This article sets out what trustees can decide themselves, what needs authority, and what the accounts have to show afterwards.
What counts as permanent endowment?
Permanent endowment is capital the charity is not free to spend, held either as invested assets where only the income is available, or as property given for a specific use such as a building. Two distinctions come first, because both change the answer.
- Expendable endowment is not permanent endowment. Where the governing document already lets trustees spend the capital, none of the statutory machinery below applies. Classify the funds before you start.
- Designated land sits outside the no-authority routes. Land held on trust to be used for the charity's own purposes, a village hall or a school site for example, cannot be released or borrowed against on a resolution alone, and Commission authority can be needed to sell or lease it whatever it is worth.
The powers can also be excluded or restricted by the trusts of the fund itself, so the trust deed is read first and the Act second. That classification work drives how the funds are presented in the accounts, which our note on what changed in SORP 2026 covers.
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When can trustees release the capital themselves?
Where the market value of the available endowment fund is £25,000 or less, section 281 applies. Trustees pass a resolution freeing the fund, or a portion of it, from the restriction on spending capital, provided they are satisfied that the purposes set out in the trusts could be carried out more effectively if the capital could be spent as well as the income. No copy goes to the Commission and no waiting period runs.
The test is a real one. It is not that the money is needed, or that a deficit is looming, but that the charity's purposes would be served more effectively. Record the reasoning at the time, in the minutes, in the terms the section uses. Trustees who borrowed from the fund earlier can also resolve to cancel the obligation to repay it, on the same effectiveness test.
When does the Charity Commission have to agree?
Above £25,000 the decision runs through section 282 and the resolution has no effect until the Commission concurs. Trustees send a copy of the resolution with a statement of their reasons. The Commission then weighs any evidence of the donors' wishes and any change of circumstances since the fund was established, including the charity's financial position and the needs of its beneficiaries, and may only concur where it is satisfied that spending the capital is consistent with the spirit of the original gift and that the trustees have complied with the Act.
It must notify the trustees within 60 days of receiving the copy resolution, and that period extends where it directs a public notice or asks for further information. Market value for this test means the figure recorded in the accounts for the last financial year, or a valuation carried out for the purpose where the accounts carry none. Where trustees have borrowed from the fund, an adjusted market value applies instead: a current valuation, stripped of the benefit of the debt the trustees owe the fund and increased by the borrowing still outstanding. A fund that looks small on the face of the investment report can therefore still be a Commission case.
Can we borrow from the endowment rather than spend it?
Yes, and this is the route trustees most often miss. Section 284A lets trustees borrow from an available endowment fund with no authority from anyone, provided they are satisfied the borrowing is expedient in the light of the charity's purposes and that arrangements are in place to repay within 20 years. Expedient means a clear advantage to the charity, not simply convenience.
The permitted amount is 25% of the value of the fund, so a £100,000 endowment supports up to £25,000 of borrowing, reduced by anything already borrowed and not yet repaid. Borrowed money cannot be used to repay any earlier borrowing from permanent endowment. On repayment trustees may add an amount up to the estimated capital appreciation the borrowed money would have earned, and everything returned goes back into the fund under the original restrictions.
What do the accounts have to show?
A release changes the fund balances, so the movement belongs in the statement of financial activities and the funds note, with the resolution and any Commission concurrence explained in the trustees' annual report. Borrowing does not take the capital out of the endowment: the fund holds a receivable instead, and the obligation to repay within its 20 year horizon is disclosed. Where the charity invests on a total return basis under section 104A, the accounts also show the trust for investment, the unapplied total return and the allocation made for the year. None of that changes when the cash moves between bank accounts, which is the separate question consolidating legacy bank accounts deals with.
Reserves policy is the other half of this conversation, because endowment is not free reserves and a policy that quietly counts it is wrong before the first figure is written. Our guide to how much a charity should hold in reserves sets out the split, and the trustees' annual report guide covers where the explanation goes. Where income means the accounts face external scrutiny, the independent examination or audit checker shows which applies. A specialist reviews the trust deed against the statutory powers and confirms which funds are genuinely permanent before any resolution is drafted.
Frequently asked questions
- Can charity trustees spend permanent endowment?
- Yes, in defined circumstances, and it is a decision the trustees take rather than something they apply for. Sections 281 to 284D of the Charities Act 2011 let them lift the spending restriction by resolution, so the original gift is not rewritten and no scheme is required. What changes with size is who signs it off: an available endowment fund of £25,000 or less ends with the trustees, and anything above that has no effect until the Charity Commission concurs. Spending released capital is a one way step, so the borrowing route is worth weighing against it first.
- Is the £25,000 test about the fund or about the amount we want to spend?
- The fund. A £3,000 release out of a £400,000 endowment is a Commission case, because section 282 bites wherever the available endowment fund itself exceeds £25,000. Two valuation points follow from that. The ordinary figure is the one carried in the accounts for the last financial year, and a valuation is only commissioned where the accounts hold none. Where the trustees have already borrowed from the fund, an adjusted market value replaces it: a current valuation, with the benefit of the debt owed to the fund taken out and the borrowing still outstanding added back. That can put a fund over the gate when the investment report suggests it sits comfortably under.
- How long does Charity Commission authority take?
- The Commission has 60 days from receiving the copy resolution to notify the trustees of its decision, and that period can be extended where it directs a public notice or asks the trustees for more information. Concurrence is not a formality either: the Commission has to be satisfied that the release honours the spirit in which the gift was made, and that the trustees have met what the Act asks of them.
- Can we borrow from our permanent endowment instead of releasing it?
- Yes, and nobody has to authorise it. Section 284A carries two conditions of its own instead: the trustees must be satisfied that borrowing is expedient in the light of what the charity exists to do, and repayment arrangements must be in place that run no longer than 20 years. The ceiling is a quarter of the fund's value, so £25,000 on a £100,000 endowment, with anything already borrowed and unrepaid counted against it. When the money goes back, trustees may add up to the capital growth it would have earned had it stayed invested.
- What is the difference between permanent and expendable endowment?
- Permanent endowment is capital the charity must keep, with only the income available for spending. Expendable endowment is capital the trustees already have a power to spend, usually given by the governing document. Nothing in sections 281 to 284D is needed to spend expendable endowment. Getting the classification wrong in either direction is the most common problem behind these questions.
- Does adopting a total return approach change what we can spend?
- It changes how the return is split rather than what the capital is. Under section 104A trustees of a permanent endowment held for investment can resolve to invest on a total return basis, treating income and capital growth as one return and allocating from it each year. The accounts then have to show the trust for investment, the unapplied total return and the allocation made.
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