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Charity

A charity is an organisation established for charitable purposes — for the public benefit rather than for the private benefit of its members or founders. Charities occupy a unique position in the landscape of governing structures — they are subject to their own body of law, their own regulator, and their own set of obligations that go beyond those of any commercial entity. They also benefit from significant tax reliefs that make them a powerful tool in estate planning, both during a lifetime and on death.

What a charity is

In England and Wales, a charity is an organisation that meets two conditions under the Charities Act 2011 — it must have charitable purposes, and those purposes must be for the public benefit. Charitable purposes are defined in the Act and include the prevention or relief of poverty, the advancement of education, the advancement of religion, the advancement of health, the advancement of arts and culture, the advancement of amateur sport, the protection of the environment, and several other categories. Not every good cause qualifies as charitable — the purposes must fall within the defined categories, and they must genuinely benefit the public rather than a private class of individuals.

A charity does not have to be incorporated — it can exist as an unincorporated charitable association or a charitable trust. But most charities of any size operate through a formal legal structure — most commonly a charitable trust, a company limited by guarantee, or a Charitable Incorporated Organisation — which gives the charity its own legal identity and provides its trustees with limited liability.

Charity beyond registration

A charity, in its truest sense, is an organisation or arrangement acting for the benefit of others without private gain. This exists independently of any register, any regulator, and any statute. Charitable giving happens constantly — between neighbours, within communities, through informal collections and voluntary efforts — without any of the formal apparatus of registered charity status. The giving is real. The benefit is real. The charitable intention is real. None of it requires a certificate from the Charity Commission to exist.

What registration provides is access to the tax reliefs that statute attaches to recognised charitable status — Gift Aid, IHT exemption, CGT relief, business rates relief. These are valuable, and for organisations raising significant sums or receiving substantial donations, they are worth having. But they are the consequence of registration, not the definition of charitable activity. A man or woman who gives generously to causes they believe in — whether through a registered charity or not — is acting charitably. The state's recognition of it is a separate question from whether it is happening.

How a registered charity is established

A charity is established by creating its governing document — a trust deed for a charitable trust, articles of association for a company limited by guarantee, or a constitution for an unincorporated association. The governing document sets out the charity's purposes, its governance structure, and how it will operate. Once established, most charities must register with the Charity Commission — the independent regulator of charities in England and Wales — if their annual income exceeds £5,000. Registration is compulsory above this threshold, though some charities — including exempt charities, such as universities and certain museums — are regulated separately.

The Charity Commission maintains a public register of charities. Once registered, the charity's details — its purposes, its accounts, its trustees, and its governing document — are publicly available. The Commission has powers to investigate, intervene, and if necessary wind up charities that are not operating in accordance with their purposes or the law.

The Charitable Incorporated Organisation

The Charitable Incorporated Organisation — the CIO — was introduced in 2013 as a bespoke corporate structure specifically for charities. It combines the legal personality and limited liability of a company with the governance framework of a charity — without requiring registration at Companies House. A CIO registers directly with the Charity Commission, files its accounts there, and is regulated solely under charity law rather than company law. For many charities, the CIO is now the preferred structure — it provides all the benefits of incorporation without the dual regulatory burden of both Companies House and the Charity Commission.

Trustees

The people who govern a charity are called charity trustees — regardless of what the governing document calls them. They may be described as directors, governors, board members, or council members — but in law they are trustees, and they carry the full weight of trustee responsibility. Charity trustees are responsible for ensuring the charity operates in accordance with its purposes, that its assets are protected and properly applied, and that it complies with charity law and the Charity Commission's requirements.

Charity trustees generally cannot be paid for their trustee role — this is a fundamental principle of charity law, reflecting the voluntary nature of charitable governance. Exceptions exist where the governing document specifically permits payment, or where the Charity Commission gives consent — but payment of trustees is the exception, not the rule. Staff and employees of the charity can be paid for their work — but their role is distinct from that of the trustees who govern the organisation.

A charity trustee must be over 18, must not be disqualified under charity law — disqualification grounds include bankruptcy, certain criminal convictions, and being prohibited by the Charity Commission — and must act in the interests of the charity's beneficiaries rather than in their own interests or the interests of the donors. The fiduciary duty of a charity trustee is among the most demanding in English law.

Tax reliefs — why charities matter for estate planning

Registered charities benefit from significant tax reliefs — and those reliefs flow through to the donors and estates that give to them. This is what makes charitable giving through a registered charity a powerful tool in estate planning, both during a lifetime and on death.

• Gift Aid. A registered charity can reclaim the basic rate income tax on donations made by UK taxpayers — adding 25p to every £1 donated at no additional cost to the donor. Higher rate and additional rate taxpayers can reclaim the difference between their rate and the basic rate through their Self Assessment return.

• Inheritance Tax — gifts to charity during lifetime. Gifts to qualifying registered charities during a lifetime are exempt from IHT entirely — there is no limit, no seven-year clock, and no reporting requirement. A man or woman who gives £100,000 to a registered charity during their lifetime removes that £100,000 from their estate for IHT purposes immediately and permanently.

• Inheritance Tax — legacies on death. Gifts to qualifying registered charities on death are exempt from IHT entirely — they pass outside the taxable estate regardless of value. In addition, if at least 10% of the net chargeable estate passes to qualifying registered charities on death, the IHT rate on the remainder reduces from 40% to 36%.

The 10% charitable legacy — how it works in practice.

The 10% is calculated on the net chargeable estate — the estate after deducting the nil rate band and any other exemptions, but before deducting the charitable gift itself. This is an important distinction. It is not 10% of the gross estate.

Example: a man leaves an estate of £425,000 to his niece. He has no RNRB. His net chargeable estate after the NRB of £325,000 is £100,000. To trigger the reduced rate, the charitable legacy must be at least 10% of £100,000 — that is, £10,000.

Without any charitable gift: taxable estate £100,000, IHT at 40% = £40,000. Niece inherits £385,000.

With a £10,000 charitable gift: taxable estate reduced to £90,000, IHT at 36% = £32,400. Charitable gift £10,000. Total leaving estate: £42,400. Niece inherits £382,600.

The niece inherits £2,400 less than without the gift. The IHT saving of £7,600 does not offset the cost of the £10,000 gift. The charity benefits. The niece does not.

A note on the maths — and the motivation

The reduced rate from 40% to 36% is sometimes presented as a reason to make a charitable legacy — as though the tax saving makes the gift cost-neutral, or close to it. The example above shows clearly that it does not. The niece inherits £2,400 less as a result of the gift. The IHT saving (£7,600) does not offset the cost of the charitable gift (£10,000). The beneficiary is worse off — not better off — as a result of the legacy.

The 10% rule is worth knowing about and worth modelling for estates where a charitable legacy is already planned — because it may reduce the IHT bill on the remainder. But it is not a reason to make a charitable legacy where none was otherwise intended. If the only motivation is the tax saving, the numbers do not support it. The beneficiaries would inherit more without the gift than with it, even accounting for the reduced rate.

Give to charity because you want to give. The tax relief is a welcome consequence of that intention — not a reason to manufacture one.

Capital Gains Tax. Gifts of assets to a registered charity — shares, property, or other assets — are exempt from CGT. Where an asset has grown significantly in value, gifting it to charity rather than selling it avoids the CGT that would otherwise arise on the gain. The charity receives the full value of the asset. The donor pays no CGT.

Business rates relief. Registered charities are entitled to mandatory 80% relief on business rates for premises used wholly or mainly for charitable purposes, with the option for local authorities to grant a further discretionary 20% relief.

A word on experience — charities in practice

Charity, as a word and as an idea, carries an assumption of virtue. And most charities — particularly smaller, community-based organisations — operate with genuine integrity, genuine purpose, and genuine care for the people they serve. But a charity is also, in many cases, a corporation. And like any corporation, it has overheads, it has staff, it has premises, it has a management structure — and it has its own institutional interests to protect.

There is no legal requirement for a charity to spend any defined minimum proportion of its income on its charitable purposes. Charities are required to report their expenditure — including how much is spent on charitable activities versus how much on raising funds, management, and administration — in their annual accounts, which are publicly available on the Charity Commission register. But the law does not set a threshold. A charity that spends 30% of its income on the cause and 70% on overheads and fundraising is technically compliant. It is worth looking at the accounts before assuming that a donation to a well-known charity translates directly into support for the cause it represents.

Charities named as beneficiaries in a Will are legally entitled to their legacy. Some — particularly larger, professionally run organisations — are experienced at pursuing what they are owed. Executors administering estates that include charitable legacies have reported being contacted by charity legacy teams shortly after a death, asking when they can expect to receive their gift. This is not unlawful — the charity is owed the money and is entitled to ask about it. But it can feel jarring at an early stage of the administration, when the family is still grieving. It is worth knowing this can happen.

In my experience, charity begins at home. With the people immediately around you — your family, your friends, your local community. The man or woman who gives their time to a neighbour in difficulty, who supports a local food bank, who helps a friend through a hard time — these are acts of charity in the most genuine sense, and they need no register, no regulator, and no tax relief to be real or valuable. Giving to large national or international charities is a personal choice — but it is worth giving consciously, knowing where the money goes and whether the cause you care about is genuinely being served by the institution that claims to represent it.

On death — what happens to the charity

A charity does not cease to exist on the death of a trustee or member. The charity continues as a legal entity. New trustees are appointed in accordance with the governing document. The charity's assets, purposes, and obligations are unaffected by the death of any individual involved in it. Trusteeship is a personal role — it cannot be inherited, cannot be gifted, and does not form part of the estate.

On death — legacies to charity

A legacy to a registered charity in a Will passes outside the taxable estate entirely — it is not subject to IHT regardless of its size. A legacy to a charity should name the charity precisely — using its full registered name and charity registration number — to avoid any ambiguity about which organisation the legacy is intended for. Where a charity has merged, changed its name, or ceased to exist by the time of the donor's death, the legacy may fail unless the Will includes appropriate provisions for such circumstances.

On incapacity — what happens to the charity

A charity does not cease to exist if a trustee loses capacity. The charity continues. The incapacitated trustee's ability to fulfil their governance role is affected — they cannot attend meetings, cannot vote, and cannot sign documents. The governing document should address what happens in this circumstance — whether the trustee's appointment terminates automatically on loss of capacity, how a replacement is appointed, and what authority the remaining trustees have in the interim. A Property & Financial Affairs LPA is important for any charity trustee who holds personal assets connected to the charity's operations — though it does not give the attorney the right to act as a charity trustee. Trusteeship is a personal role governed by the charity's governing document and charity law.

Setting up a charity — is it right?

Establishing a registered charity is a significant commitment. The governance obligations, the reporting requirements, the duties of trustees, and the regulatory oversight of the Charity Commission are all real and ongoing. For many people who want to support a cause, the more practical route is to give to an existing registered charity through lifetime gifts or a Will — rather than establishing a new one.

Where the intention is to establish a lasting charitable legacy — a family foundation, a grant-making body, or a vehicle for ongoing charitable giving — a properly constituted registered charity with robust governance is the right structure. Where the intention is simply to support causes that matter, doing so through an existing charity is simpler, cheaper, and often more impactful. And where formal registration is not the goal — where the intention is simply to give, to help, to act for the benefit of others — that too is charity, in the truest sense of the word. It needs no certificate to be real.