Are you considering leaving a property to a charity in your will either as a specific gift or as part of the residue of your estate?
Are you the executor of an estate that has left property to charity?
Are you a charity trustee whose charity is receiving a property following a death?
This article covers some things to be aware of on a subsequent sale or transfer of property and some future changes in the law.
The current general position for charity disposals
There are specific requirements under the Charities Act 2011 relating to the disposal of land by charities. These are due to change in the spring of 2023 when the relevant part of the Charities Act 2022 comes into force.
In practical terms under the 2011 Act (save where an exemption applies, or the disposal is to a connected person (in which case an order of the Charity Commission is required), or the disposal is a lease for seven years or less (in which case less stringent requirements apply)), when land ‘held by or in trust for’ a charity is disposed of the charity trustees must:
- obtain and consider a written report from a qualified surveyor instructed by the trustees and acting exclusively for the charity
- advertise the property for such period and in such manner as the surveyor has advised in their Report (unless the Report states that it would not be in the best interests of the charity to advertise the property)
- decide that they are satisfied, having considered the surveyor's Report, that the terms are the best that can reasonably be obtained for the charity
How these rules apply where property is gifted to charity under a will
Where property is gifted to a charity under a will, and is disposed of, various questions arise as to whether the requirements of the 2011 Act will apply to the disposal.
If the personal representative sells the property before assenting (transferring) it to the charity, or before appropriating it to the charity (i.e. setting it aside to satisfy that charity beneficiary’s entitlement, such that the charity then has the right to call for the property to be transferred to it, or to someone else, often done for CGT purposes), then generally it is considered that the property will not be ‘held by or in trust for a charity’ and the requirements of the 2011 Act will not apply.
However, if the property is disposed of after it has been appropriated or assented to the charity then entitlement to the property vests in the charity and any sale will be at its behest and so it is considered that the charity trustees will need to comply with the requirements of the 2011 Act.
There has also been uncertainty about whether and in what circumstances the requirements are engaged where a charity is one of multiple beneficiaries entitled to a property that is disposed of.
Changes under the 2022 Act which will benefit all charities
The property provisions of the 2022 Act will simplify the general requirements for all charities, so that:
- the matters required to be covered by the Report should be fewer, simpler and less fiddly
- the Report can be provided by a designated adviser (intended to now include estate agents and agricultural valuers) rather than solely by a surveyor
- there will no longer be a requirement (as there is currently) to advertise the property unless the Report specifically says otherwise, which will save some hassle in situations where advertising is not appropriate
Changes under the 2022 Act specifically dealing with the situation where the property disposed of is left to a charity under a will
Various issues with the existing regime as it applies to disposals of land gifted to charity by will were raised in the consultations that preceded the 2022 Act.
However in the end the main specific change made has been to make clear that the requirements will not apply in any circumstances on a disposal where a charity is one of multiple beneficiaries entitled to a property (given that in that situation the power of sale lies with the trustee of the land, not with the charity, and it would therefore be illogical for the charity trustees to be required to seek and consider advice on the terms of that disposal).
Accordingly, when the 2022 property provisions come into force, the 2011 Act will be amended to make clear that land is only considered to be ‘held by or in trust for a charity’ if the whole of the land being disposed of is held:
- by the charity solely for its own benefit or
- in trust solely for the charity
Disposal of land gifted to charity remains a complex area
Whilst the above changes will make disposal requirements simpler to comply with generally, and provide some clarity in situations with multiple beneficiaries, personal representatives and charities still need to be aware of the fact that requirements may bite on assent or appropriation where the property is gifted solely to the charity, as well as the fact that the changes above will not come into force before next spring and in the meantime the existing regime continues to apply.
If you would like further information or advice on the formalities for land transactions involving charities, or advice on the duties of charity trustees, please contact our charity team.
You can also watch the charity team’s recent webinar on the upcoming changes to the law on disposals of charity land here: Talk on the changes charities face when selling or leasing land | Russell-Cooke