Charitable Trusts

Charitable trusts

Today’s post looks at charitable trusts.

Charitable trusts

We’ve looked previously at family investment companies and family trusts, neither of which seem to have significant tax advantages over the more common forms of investment vehicle.

Now one of my coaching clients has asked me to look into charitable trusts.

  • He’s thinking of starting one to pass on money that he doesn’t need.

As far as I can see, it’s pretty much like setting up your own charity.

What are they?

A charitable trust is a trust that has been established specifically for a charitable purpose – something that is of value and importance to the community at large.

  • As a consequence, a charitable trust receives a favourable tax treatment, compared to a regular trust.

Any gift setting up a charitable trust must have a public benefit.

  • This means that there must be an identifiable benefit, and it must be available to a sufficient section of the public.

Note that this section can in practice be quite small: it is acceptable, for example, for a charitable trust to benefit sufferers of a very rare disease or disorder.


As with other trusts, charitable trusts are set up by a “settlor”, who transfers ownership of assets (or money) into the trust.

  • Note that there may be more than one settlor, and the settlor could be a business.

The trust is then managed by the trustees, who may or may not include the settlor.

  • Trustees decide how the income and assets of the trust should be distributed, and make sure that this is in line with the charitable purposes of the trust.
  • They could include your family, friends or colleagues, or your lawyer.

Trusts also have a beneficiary – the party that derives the benefit from the assets within the trust.

  • In the case of a charitable trust, this is a charitable cause (on behalf of the public).

Trustees of charitable trusts have the same duties as those of non-charitable trusts – to execute the trust in accordance with its terms in the interests of the beneficiaries prescribed (in this case the public).

What counts as a charitable purpose?

If you’re thinking of setting up a charitable trust, there are quite a few good causes to choose from:

  1. The prevention or relief of poverty
  2. The advancement of religion
  3. The advancement of education
  4. The advancement of health or the saving of lives
  5. The advancement of citizenship or community development
  6. The advancement of the arts, culture, heritage or science
  7. The advancement of amateur sport
  8. The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
  9. The advancement of environmental protection or improvement
  10. The relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantages
  11. The advancement of animal welfare
  12. The promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services
  13. Facilities for recreation or other leisure-time occupation
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In the limit, the courts will determine whether a particular purpose is charitable.

Since the purpose of many charitable trusts can be seen as almost impossible to accomplish in their entirety, charitable trusts are permitted to be perpetual (in contrast to regular trusts which have a pre-defined winding-up date).

What is the legislative framework?

Charities in England and Wales are regulated by the Charities Commission and the primary legislation is the Charities Act 2011.

  • Charitable trusts are enforced by the Attorney-General in the name of the Crown.

Charitable trusts do not need to apply to HMRC’s Trust Registration Service (TRS) – an anti-money laundering provision – unless they are required for some reason to pay tax.

How is a charitable trust formed?

A charitable trust is created by a trust deed for charitable purposes in relation to specified assets. 

  • Charity law means that there does not need to be a human beneficiary of the trust – the trust is for the benefit of the public at large.

The trust deed should describe:

  1. the powers and responsibilities of trustees
  2. how they are appointed and removed
  3. the approach to investment
  4. how the constitution (but usually not the charitable purposes) can be altered
  5. what will happen after the death of the settlor
  6. the initial amount of the gift

The Charity Commission has model trust deeds available on their website.

Tax breaks

There are several tax breaks:

  1. Charities are exempt from income tax, and any tax paid or credited can be recovered from HMRC.
    • In non-charitable trusts, beneficiaries may be taxed on income earned from the assets held in trust, particularly if the beneficiary and settlor are the same individuals.
  2. Donations also qualify for Gift Aid and payroll giving
    • Donors must provide a declaration to enable the charity to reclaim the income tax paid.
    • Some employers will match charitable donations made in this way.
  3. Gifts to charities out of an estate are exempt from inheritance tax, thereby
    encouraging members of the public to leave charitable legacies in their wills.
    • Non-charitable trusts may be taxed here, particularly where assets totalling more than the inheritance tax Nil Rate Band is being transferred.
  4. Charitable trusts are also exempt from corporation tax and business rates and do not have to register for VAT payments.

Running costs need not be high, and can be paid from the trust’s income, but involving professionals will not be cheap.

  • A lawyer might charge £2K or more to set up a trust.
  • Annual accounts need to be submitted to the Charity Commission – an accountant could costs upwards of £1K per year.
  • If there are significant amounts of assets to be invested, management fees could be high.

If you are going to involve professionals, a pot of around £250K looks like the point at which this becomes cost-effective.


Some firms will administer your trust on your behalf, for a fee.

  1. They operate a Master Trust, of which your own fund becomes a sub-section.
    • This usually means that you won’t need your own trustees, or have to report to the Charity Commission.
  2. Typically these funds are flexible about the assets they will accept.
    • Initial balances for such sub-funds need to be of the order of £250K, though subsequent gifts can be much smaller (around £250 each).
  3. They will operate Gift Aid on your behalf, and providers might also offer advice on issues like tax efficiency.
  4. Expenses can be reduced by being pooled across sub-funds.
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The output from such a trust is usually a series of grants to other UK charities, rather than direct charitable action.


If you have a lot of money to give away, and you can’t find an active charity that supports the cause that you want to champion, a charitable trust looks like a decent option.

  • A trust can also help with anonymity, where that is an issue.

For smaller donations in your own name, direct giving to existing charities seems preferable.

Until next time.

Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 40 years, with some success.

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Charitable Trusts

by Mike Rawson time to read: 4 min