The Perpetuities and Accumulations Bill received Royal Assent on 12 November 2009. Its provisions are expected to be brought into force sometime towards the middle of this year.

Under the existing law, trustees are restricted in the length of time for which they can accumulate a trust's income, usually to no more than 21 years. This is known as the rule against excessive accumulations, which was developed in response to the 18th century concern that unlimited accumulation periods could result in a small number of families holding the majority of the country's wealth. The rule applies to both charitable and non-charitable trusts (but not to charitable companies, unless they are acting as a corporate trustee).

It has been argued for some time that the rule should be abolished in respect of non-charitable trusts. The Act does this. However, it was agreed that some form of statutory restriction on the ability of charitable trusts to accumulate income should remain, to ensure that charitable trusts could not accumulate their wealth indefinitely and should at some point apply this income for their charitable purposes. The Act therefore preserves the rule for charitable trusts, permitting accumulation either for 21 years (starting on the first day when income must be accumulated) or for the lifetime of the person who created the trust. Unlike the current law, the Act applies to charitable trusts created by both corporations and individuals. Since the Act says that the 21-year period will apply unless the trust instrument specifies that the power to accumulate is to end on the death of the person who created the trust (or one of them, if it was created by a group of people), trusts created by corporations will have an accumulation period of 21 years.

Importantly, however, the rule will not apply to provisions made by a court or by the Charity Commission (and so will not apply to Charity Commission schemes or total return orders). Charitable trusts will therefore be able to apply to the Commission or to court to extend their accumulation period for a specified purpose. Charities will also continue to be able to retain income for administrative purposes.

That said, it is important for charity trustees to balance the need to preserve the charity for future beneficiaries (which might suggest accumulating income) against the charity law requirement to apply funds for charitable purposes.

Sara van der Pas is a solicitor at Farrer & Co