Millions of pounds could be unlocked in Scotland following the passing of regulation which allows charities to apply to the Office of the Scottish Charity Regulator to change the purpose of restricted funds.

The Charities Restricted Funds Reorganisation (Scotland) Regulations 2012 came into effect yesterday allowing charities to apply to use funds which have been collected for a specific purpose in a different way than originally intended, or remove restrictions which prevent them from spending restricted funds more effectively.

OSCR says the new regulations tackle inefficiencies brought about by "outdated restrictions". For instance if a charity had collected funds specifically for the erection of a war memorial which totalled more than the cost of its construction, the new regulations make it easier to access the remaining funds for other purposes.

Applications will be handled differently depending on the size of the restricted funds. Applications for 'large funds', comprising property of more than £1m or with a gross annual income of over £100,000, and 'small funds', of £1m or less and a gross annual income of £100,000 or less, will each take six months to complete. Applications for 'very small' restricted funds, of less than £1,000 with no heritable property or shares in a private limited company, will undertake a simplified process, taking 13 weeks to complete.

Safeguards 

Martin Tyson, head of charity services at the regulator, said the regulation will save charities potentially lengthy and expensive legal proceedings to make changes to funds, and adds that "there are safeguards to protect the wishes of donors".

For instance a statement will be required in the application confirming that the charity was unable to contact the original donor to ascertain their wishes. It would also be expected that if the charity is unable to contact donors, particularly in the case of multiple donors, it could advertise in relevant press likely to attract their notice.

All applications, other than for very small restricted funds, will also be published on the OSCR website, allowing members of the public to express their views. For large donations the charity must also place an advert in a newspaper or periodical. It is at OSCR's discretion whether it feels it necessary to publish details of applications in the very small category on its site.

Applications must also satisfy one of the following conditions:

That some or all of the purposes of the restricted funds... 

• have been fulfilled as far as possible or adequately provided for by other means
• can no longer be given effect to
• have ceased to be charitable purposes
• have ceased in any other way to provide a suitable and effective method of using the funds, having regard to the spirit of the restricted funds

Or that the purposes of the restricted funds provide a use for only part of its property (funds exceed their restricted purpose).

Full restrictions and regulations guidance are available on the OSCR website.