Charity Ex Gratia Payments UK: Trustee Powers 2024

Overview

An ex gratia payment, in a charity context, is a transfer of money or assets that trustees make not because the charity is legally required to pay, but because they feel morally bound to do so. A classic example is where a deceased donor's Will leaves a gift to a charity, but family correspondence makes clear the donor intended to change the Will shortly before death to reduce or remove that gift.

The charity has no legal obligation to hand anything back, yet trustees may feel that keeping the full amount would be wrong. Historically, trustees needed the Charity Commission's authorisation under section 106 of the Charities Act 2011 before making such a payment, because charity assets must ordinarily be used strictly for charitable purposes.

The Charities Act 2022 introduced reforms that allow trustees to make smaller ex gratia payments on their own authority, within set financial limits linked to the charity's annual gross income, and to delegate the decision to staff or a committee rather than requiring the full trustee board to sign off every time.

Key steps

1. Check whether a genuine moral obligation exists. Ex gratia payments are only lawful where trustees believe they are under a moral duty to act, not simply because a payment would be kind or generous. The classic test asks whether, if the trustees were acting in their own personal capacity rather than as trustees, they would feel morally bound to make the payment.
2. Work out the relevant income threshold. The permitted amount trustees can pay without Commission authorisation depends on the charity's gross income in its last financial year. Higher-income charities are allowed larger ex gratia payments on their own authority, while smaller charities face tighter limits. Check the current figures on gov.uk before relying on any specific number.
3. Decide who will make the call. Trustees can now delegate the decision to a member of staff, a committee, or another suitable person, which is particularly useful for larger charities dealing with legacies and bequests at scale. Whoever decides must still apply the moral obligation test properly and keep a clear record of their reasoning.
4. Document the decision and the rationale. Good governance requires written minutes showing the facts considered, why the moral obligation was accepted, the amount paid, and how it fits within the statutory threshold. This record protects trustees if the decision is later questioned by regulators, members, or beneficiaries.
5. Seek Commission authorisation if the payment exceeds the threshold. Where the proposed payment is larger than the statutory limit for the charity's income band, or where there is any doubt about whether the power applies, trustees should apply to the Charity Commission for authorisation before paying. Acting outside the statutory power without approval can expose trustees to personal liability.

Common questions