New power to make ex-gratia payments gets the green light

The long-awaited statutory power for charities to make ex-gratia payments up to a certain value without seeking Charity Commission consent will finally come into force on 27 November 2025.

The power was originally intended to come into effect in 2022 but was delayed amid concerns that it might lead to the repatriation of artefacts held by museums, many of which are prevented from making such transfers by the legislation under which they were formed.  This was because the power (along with the associated power for the Charity Commission to authorise higher-value ex-gratia payments) was expressed to apply even where it would conflict with such legislation.

The government has now dealt with these concerns by ensuring that the new powers will not be applicable to the property of certain museums and similar institutions, including The British Museum, The British Library and the Tate Gallery.

What is an ex-gratia payment?

An ex-gratia payment can occur when the trustees of a charity believe themselves to have a moral – but not a legal – obligation to apply the charity's property in a particular way. This situation is common in probate cases where, for instance, it has been established that the deceased intended to change their will but died before being able to do so.  It can also arise outside the legacy context where, say, the trustees believe it would be appropriate to make a payment to a longstanding employee or volunteer for outstanding service. Not all ex-gratia payments are in fact payments: in some cases, trustees will feel morally obliged to waive their charity's entitlement to property before ever receiving it.

The current regime

As things stand, whenever trustees believe that an ex-gratia situation has arisen, it is necessary for them to seek an order of the Charity Commission before making any payment or waiving any entitlement. This is the case irrespective of the value concerned, although it has generally been considered acceptable for an order not to be sought where the amount in question is low (up to £1,000, say).

The application must be made by the trustees and involves providing the Commission with various details including the amount involved and the circumstances that have led to the request, and supporting documents, including a copy of the minutes of the meeting at which the decision to apply was made. The trustees must also provide the Commission with a clear statement as to why they believe a moral obligation exists.

The Commission then considers the application and may seek additional information or documents. If it believes that the trustees' assessment of the situation is reasonable, it will grant its consent, although it may sometimes apply conditions. Only then may the trustees proceed and, in doing so, they must comply with any conditions that the Commission has laid down. The overall process can be fairly lengthy and can seem disproportionate in terms of resources - particularly where the value to the charity is low.

The new regime

From 27 November, charities will have a limited power to make ex-gratia payments or waive their entitlement to property up to a certain amount, without having to seek an order.  The amount in each case will depend on the charity's gross income during the last financial year:

The thresholds are not annual: they apply per payment/waiver. Consequently, charities with an annual income of over £1 million will be able to make multiple ex-gratia payments of up to £20,000 each without involving the Commission - provided that, in each case, they "could reasonably be regarded as being under a moral obligation to take the action" (to quote the new provisions).

Trustees will also be able to delegate decision-making authority with regard to ex-gratia payments and waivers to sub-committees or members of staff, which has not technically been permissible to date. Individual charities are likely to deal with this differently but, however they do so, it should provide more flexibility and lower the administrative burden on charities (and indeed the Commission) where the amounts in question are not significant.

What if the value is over the threshold?

Where the value of a proposed ex-gratia payment or waiver exceeds the relevant threshold, it will still be necessary to obtain the Commission's prior consent, and existing section 106 of the Charities Act 2011 will be amended on 27 November to reflect this. Consent applications that are already under consideration (or made before the new provisions come into effect) will continue to be dealt with under the old regime.

If you would like our advice on the ex-gratia regime, or you would like us to review your charity's scheme of delegation in light of the changes being introduced, please contact Andrew Mackie or another member of our Charities team.