Winckworth Sherwood

UK 200 2013 position: 94

Trusts (Capital and Income) Act 2013

The distinction between capital and income is particularly important for charitable trusts with a permanent endowment and private trusts where there are successive interests (for example an interest in possession [IIP] followed by remainder interests).

The Trusts (Capital and Income) Act 2013 is intended to ease financial management of trusts in two main ways: by allowing a charity to adopt a ‘total returns’ policy (in other words, invest so as to obtain the largest overall return to the charity and then decide how to allocate the overall return, both capital growth and income) without needing a Charity Commission scheme; and by removing historic rules of differentiation and apportionment of capital and income (mainly relevant to private trusts).

As a preliminary point, the act does not suddenly open the doors to reckless expenditure by unrestricted use of capital. It is clear from both the conditions that attach to the adoption of a ‘Total Returns’ policy in the regulations, and the Charity Commission detailed guidance, that any decision by charity trustees to exercise this new freedom must not be taken lightly, but only after receiving advice and carefully considering the ramifications. Rather, the dispensation given by the act should be viewed as a technical tool and as an integral part of the general financial management…

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