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1. A charity's unapplied total return |
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The amount of funds that represent a charity's unapplied total return will change over time, as investment return is received and added to it and as part of the unapplied total return is taken out and allocated to the trust for application (income). |
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Although a charity’s unapplied total return may increase, this is not legally an "accumulation". Trustees are required to consider periodically what part of the unapplied total return ought to be allocated to the trust for application (income), so as to discharge the duty of even-handedness. Any part of the unapplied total return may be allocated to the trust for application (income) at any time. On each occasion the allocation must be compatible with the discharge of the duty to be even-handed in the treatment of present and future beneficiaries. |
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Allocating part of the unapplied total return to the trust for application (income) is different from an application of expendable endowment. Trustees must carry out specific duties attached to the use of the power to allocate any part of the unapplied total return to the trust for application (income). By contrast, trustees do not have these duties when exercising their discretion to spend any part of a charity's expendable endowment (including the original gift itself). They can freely decide that expendable endowment may be treated as income and spent on the charity's objects. |
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The need to comply with specific duties prior to making any allocation to the trust for application (income) is a restriction on the expenditure of the unapplied total return and brings the unapplied total return within the definition of permanent endowment in section 96(3) of the Charities Act 1993. A charity’s unapplied total return is therefore part of its permanent endowment. This is the case even though it is not the same as permanent endowment in the traditional sense (ie resources that represent gifts to the charity) and notwithstanding that it may include elements of what, under the standard rules, would be regarded as income. |
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Unapplied total return remains subject to the trust for investment (capital) unless and until it is allocated to the trust for application (income) in a way that is compatible with the duties attached to the use of the power. |
