The Charity Law Association (CLA) has given qualified backing to proposals to allow endowed charities to invest on a total return basis without having to request an order from the Charity Commission.

Responding to the Ministry of Justice’s consultation on the Trusts (Capital and Income) Bill, the CLA’s working party on the issue (chaired by Rachel Holmes of Farrer and Co, pictured) welcomed the proposal but said it has “reservations about the way in which the proposal is implemented in the draft Bill”.

Adopting a total return policy allows trustees to invest for capital growth at the expense of income where appropriate, and then treat part of the capital growth as income and expendable.

One of the CLA’s concerns relates to the unclear wording of which organisations may benefit from the change, arguing that it should simply apply to all permanently endowed funds.

It also argues that the framing of the bill could make the whole of a permanent endowment expendable, “which is a different concept to total return”.
 
It calls for trustees to have more limited power focusing on the total return issue, and warns that major donors intending to found a permanently endowed charity may find that “a statutory power to set aside their wishes by this means could be a major disincentive”.

It also said it couldn’t comment on the extent to which the change will make life easier for trustees or how well the regime would work until it has seen a draft of the detailed regulations to be made under the Bill.