Guidance

Permanent endowment: rules for charities

Find out about the rules you must follow for spending, borrowing from, or transferring your charity’s permanent endowment.

• From: The Charity Commission
• Published: 23 May 2013
• Last updated: 7 March 2024 — See all updates

Applies to England and Wales

About permanent endowment

Put simply, permanent endowment is property that your charity must keep rather than spend.

There are two main types of permanent endowment:

• money or other assets given to your charity for investment. Only the investment income can be spent
• property given to your charity which must be used only for a particular purpose. For example, land or buildings given for use as a school or recreation ground

How you must spend investment income – or how you must use permanent endowment property – are the ‘purposes’ of the permanent endowment.

Find out if your charity has permanent endowment

Look at:

• documents that tell you how property or other assets must be kept and used
• documents that were used to give property or other assets to your charity
• your charity’s governing document

It can be difficult to tell if property or other assets are permanent endowment. Always take advice if you are unsure.

Spending, borrowing from, or transferring permanent endowment

Taking these actions may help you if your charity needs:

• money to work in a more effective way
• money for better premises or repairs to buildings
• to pass your permanent endowment to another charity better suited to manage it

You can take these actions in certain circumstances, and for each separate permanent endowment fund you have.

But you must follow the right rules, and always act in the best interests of your charity.

Sometimes you must ask for the Charity Commission’s authority.

Permanent endowment is often not kept as money. This means that if you decide to spend or borrow from it, you may need to first convert it into money by selling it.

The rules in this guidance do not apply to designated land. Designated land is land that must be used only for a particular purpose. For example, land or buildings given for use as a school or recreation ground.

If your charity is incorporated

If your charity is incorporated, it is expected that it holds permanent endowment on trust. If you are unsure how your charity holds permanent endowment, take legal advice. 

Your charity, as a trustee of permanent endowment, can use the rules and options in this guidance.

Incorporated charities are:

• companies
• Charitable Incorporated Organisations (CIOs)
• those established by a Royal Charter or Letters Patent
• those incorporated by statute

Spending permanent endowment

This section sets out how you can spend permanent endowment and the rules that apply.

Whether you need Charity Commission authority depends on the market value of the permanent endowment fund you are spending from – not the amount you are planning to spend.

Rules for spending from a smaller value fund

You can spend some or all of a permanent endowment fund without the Commission’s authority if all of the following apply:

• the market value of the fund is £25,000 or less
• you are satisfied that you can achieve the purposes of the fund more effectively by spending the fund itself rather than just spending the income
• the permanent endowment is not designated land

You must:

• make a formal decision (a resolution)
• follow the rules in your charity’s governing document to pass the resolution

Keep a written record and your reasons for deciding to spend.

Rules for spending from a higher value fund

You can spend some or all of a permanent endowment fund where:

• the market value of the fund is more than £25,000
• the permanent endowment is not designated land

You must:

• pass a resolution that you are satisfied you can achieve the purposes of the fund more effectively by spending the fund itself rather than just spending the income
• get the Commission’s authority before you spend

You must send us a copy of your resolution which must be validly passed, and a statement of reasons.

In your statement of reasons tell us:

• if any people or organisations who gave the permanent endowment fund to your charity stated any wishes about how you should use it. Include any evidence of this
• the financial position of the fund
• the current needs of the people who can benefit from the permanent endowment fund, and how circumstances have changed since the fund was set up
• why you can achieve the purposes of the fund more effectively by spending it rather than keeping it (if this is not covered in the resolution)
• the current market value of the fund. Look at the valuation advice later in this guidance

The Commission will respond within 60 days to provide authority or ask you:

• for more information, such as more details on the reasons for your decision
• to take certain actions, such as to give public notice to your plans

Apply for authority to spend from a higher value fund.

Designated land

Your charity may have designated land that is permanent endowment.

Commission authority may be needed to sell, lease or otherwise dispose of designated land, whatever its value. Read our guidance to understand if you need our authority and how to apply for it.

Borrowing from permanent endowment

This section sets out how you can borrow from a permanent endowment fund, and the rules that apply.

Borrowing from your permanent endowment can help you balance your charity’s short and long-term needs by allowing you to:

• raise money that your charity needs now
• keep the benefits of having a lasting asset

Rules for borrowing smaller amounts

You can borrow from a permanent endowment fund without the Commission’s authority if all of the following apply:

• you only borrow up to 25% of the market value of the fund. Look at the advice later in this guidance for help with valuation
• the permanent endowment is not designated land
• your governing document does not say anything that stops you from using this power to borrow

You must:

• be satisfied that the borrowing is expedient. This means it must bring a clear advantage, rather than just being convenient. Consider the purposes of the permanent endowment and (if relevant) the purposes of your charity, and assess long-term as well as short-term needs
• repay the borrowed amount within 20 years
• set a plan to repay the borrowed amount on time
• show the borrowing in your charity’s accounts
• contact the Commission if you become unable to meet the repayments. We will tell you what to do next

Take any expert advice you need before you borrow, to make sure that your repayment plan is realistic.

Before you borrow, you must:

• make a formal decision (a resolution)
• follow the rules in your charity’s governing document to pass the resolution

Keep a written record and your reasons for borrowing.

You can decide to repay an extra amount than you set out in your repayment plan. This can only be to reflect the increase in the value of the permanent endowment if you hadn’t borrowed from it. You do not have to do this.

Read the Examples section for information about how to calculate the increase in value.

Rules for borrowing bigger amounts

You must ask for the Commission’s authority to borrow more than 25% of the value of a permanent endowment fund.

Email: [email protected]

Tell us:

• the market value of the permanent endowment fund
• how much you want to borrow
• your reasons for borrowing, and for borrowing more than 25% of the value of the permanent endowment
• the purposes of the permanent endowment
• other borrowing or fundraising options you have explored and your reasons for not choosing them
• how you have balanced long-term as well as short-term needs when making your decision
• your repayment plan, and how you are satisfied you can meet the repayments in the plan
• if you have obtained any relevant professional advice before making your decision to borrow and set up the repayment plan
• what other information or factors you took into account when you made your decisions

For information on how we process your personal data, read the Commission’s privacy notice.

You should be aware that it is an offence under section 60 of the Charities Act 2011 to knowingly or recklessly provide false or misleading information.

Valuing permanent endowment before spending or borrowing

Getting your valuation right will help you know if you need the Commission’s authority to spend or borrow. You should:

• use the market value of the permanent endowment fund, recorded in your charity’s accounts for the last financial year
• get a recent market valuation if there is no valuation recorded in your latest accounts

Include outstanding borrowing in your valuation

Your valuation must include any outstanding borrowing. This means amounts your charity has already borrowed from a permanent endowment fund and not yet repaid.

You can use these examples to help you understand how to include outstanding borrowing so that you do not spend or borrow more than is allowed without authority.

Take advice if you need to.

Changing  your governing document to change how you use permanent endowment

The Commission’s authority is needed before you can change your charity’s rules that say how you can use permanent endowment (its purposes). 

These rules may be in:

• your charity’s governing document
• documents that were used to give property or other assets to your charity

Take advice if you need to. Find out about changing your charity’s governing document.

Transferring permanent endowment

You can transfer permanent endowment to another charity or charities if your governing document allows it and you are satisfied that the:

• transfer will ensure the endowment will meet its original purposes
• receiving charity can and will continue to keep the property as permanent endowment after the transfer

Read guidance about transferring charity assets, which includes a section about transferring permanent endowment.

Investing permanent endowment

Find out about rules for investing permanent endowment .

Find out about rules for investing on a total return basis.

Legal note

These rules are from the Charities Act 2011 (as amended)

The main relevant sections of the Act are 281-284D and section 353.

Examples of relevant calculations

This section covers the following:

• introduction
• valuing your permanent endowment
• understanding when you need Charity Commission authority
• calculating the effect of outstanding borrowing on spending
• calculating the effect of outstanding borrowing on borrowing
• formulae set out in the act

Introduction

This ‘examples’ section supplements the above guidance, which you should read first.

In this section, we have used deliberately simple examples that may help you understand the main guidance above. In particular, when you need the Charity Commission’s authority and when you do not.

The Charities Act 2011 (as amended) sets out two formulae that apply. These are given at the end of this section.

Valuing your permanent endowment

It is important to make a correct valuation. Getting your valuation right will help you know if you need the Commission’s authority to spend or borrow from permanent endowment.

Always take advice if you are unsure.

Start with the market value of the permanent endowment fund recorded in your charity’s accounts for the last financial year. If there is no valuation recorded in your latest accounts, get a new valuation.

Understanding when you need Charity Commission authority

Example 1

• your charity has shares worth £100,000 in a permanent endowment fund
• you have not borrowed from this fund before

If you want to spend £20,000 from this fund:

• you must apply for Commission authority because the market value of the fund is more than £25,000

If you want to borrow £20,000 from this fund:

• you do not need Commission authority as the amount you want to borrow is less than 25% of the value of the fund

Calculating the effect of outstanding borrowing on spending

Outstanding borrowing means where you have previously borrowed from the permanent endowment fund and still have repayments to make.

Examples 2 and 3 show how outstanding borrowing affects valuation before you can spend from the fund.

Also remember that Commission authority to spend depends on the market value of the fund in question, and not the amount you are seeking to spend.

Example 2: including outstanding borrowing in your calculation before spending from a small value fund

• your charity has borrowed £3,000 from a permanent endowment fund worth £15,000
• the permanent endowment fund has remaining assets valued at £12,000, plus a debt owed to the fund of £3,000
• the value for spending purposes is £15,000 (£12,000 + £3,000)
• as the value of the fund is under £25,000 no Commission authority for spending is needed

Example 3: including outstanding borrowing in your calculation before spending from a higher value fund

• your charity has borrowed £6,000 from a permanent endowment fund worth £30,000
• the permanent endowment fund has remaining assets valued at £24,000, plus a debt owed to the fund of £6,000
• the value for spending purposes is £30,000 (£24,000 + £6,000)
• as the value of the fund is over £25,000, Commission authority for spending is needed

Calculating the effect of outstanding borrowing on new borrowing

Outstanding borrowing means where you have previously borrowed from the permanent endowment fund and still have repayments to make.

When borrowing, remember that you need to understand whether you will be borrowing more or less than 25% of the value of the fund. Borrowing more than 25% requires Commission authority.

Example 4:

• on 1 January your charity borrowed £10,000 from a permanent endowment fund worth £100,000
• you have not made your first repayment, so you still owe all the £10,000
• the following January you want to calculate how much more you could borrow from the fund
• assuming the value of the fund has remained the same since the initial borrowing, the amount you can borrow without permission is £15,000.
• this is because 25% of £100,000 = £25,000. With £10,000 already borrowed, £15,000 is still available for borrowing

Formulae set out in the Act

The following formulae are in sections 284B and 284C of the Charities Act 2011(as amended):

1.Calculating the effect of outstanding borrowing when seeking to borrow more

To calculate the ‘permitted amount’ you may borrow from each separate permanent endowment fund without Commission authority:

(V + B)) - B where:

• V is the value of the fund on the date on which the trustees resolve to borrow from the permanent endowment, and
• B is the amount of the charity trustees’ outstanding borrowing from the fund on that same date

Another way to understand the formula is this:

• V plus B equals x
• 0.25 multiplied by x equals Y
• Y minus B equals the permitted amount

This formula is used in example 4 above.

Note that for charities that have resolved to adopt a total return approach to investment under section 104A(2) in respect of the fund (or any part of the fund), V does not include any returns from the investment of the fund (or part of the fund) which have not been accumulated.

See section 284B of the Charities Act 2011 (as amended).

2.Calculating how much extra you can repay, over the amount in your repayment plan

When making repayments, trustees may choose to pay an additional amount to reflect the increase in the value of the permanent endowment fund if you hadn’t borrowed from it. This cannot exceed ‘the maximum estimated capital appreciation’.

The Act includes a formula for calculating this maximum.

You will need to know:

• the month in which you borrowed from the permanent endowment fund (date 1) and
• the month immediately before the month in which the repayment is due to be made (date 2)

The formula is ‘R x I’ where:

• ‘R’ is the amount borrowed, and
• ‘I’ is the percentage increase in the ‘relevant index’ between date 1 and date 2, or nil if there is no increase

The Act states that the ‘relevant index’ means one of the following as chosen by the trustees:

• the retail price index
• the consumer price index, or
• any similar general index of prices published by the Statistics Board

See section 284C of the Charities Act 2011 (as amended).

Published 23 May 2013
Last updated 7 March 2024 + show all updates

1. 7 March 2024

   Guidance updated to reflect changes introduced by the Charities Act 2022.

2. 14 June 2023

   Guidance updated to reflect changes introduced by the Charities Act 2022.

3. 18 December 2014

   Clarifications including rules for companies and charitable incorporated organisations (CIOs)

4. 23 May 2013

   First published.