Guidance

Investing charity money: a guide for trustees

Updated 1 August 2023

Your trustee duties

As trustees, your principal duty is to further your charity’s purposes. This means that you must make your investment decisions to further those purposes.

It is up to you to decide how to invest to support delivery of your charity’s purposes over time.

Depending on your charity’s circumstances, you have a wide range of options, but you must:

• comply with the legal duties and requirements set out in this guidance
• make decisions in the best interests of your charity

Keep your investment approach under regular review.

Making decisions

As with any other trustee decision, when making your investment decisions you must follow the principles of good decision-making:

• act within your powers
• act in good faith and only in the interests of your charity
• make sure that you are sufficiently informed
• take account of all relevant factors
• ignore any irrelevant factors
• manage conflicts of interest
• make decisions that are within the range of decisions that a reasonable trustee body could make

Acting in your charity’s best interests means always doing what you decide will best help your charity to carry out its purposes, both now and for the future. It is not about preserving your charity for its own sake.

As trustees, you must not allow your personal motives, opinions, or interests to affect the decisions you make.

Comply with the principles set out above when you are planning, managing, and reviewing your charity’s investments. This will help you to make a proper decision and show that you have acted appropriately.

Acting with reasonable care and skill

As trustees, you:

• must use reasonable care and skill, making use of your skills and experience and taking advice when necessary
• should give enough time, thought and energy to your role. For example by preparing for, attending and actively participating in all trustees’ meetings

This is sometimes called the duty of care.

Delegating and record-keeping

You should keep a record of your investment decisions and how you reached them.

You can delegate some decisions about investments to others. For example to:

• an investment manager
• a collective investment fund or scheme

But the overall responsibility remains yours.

Find out more about:

• your general trustee duties
• the decision-making principles

Your investment powers

All charities can make investments, and your powers to invest usually come from one or both of the following:

• your governing document
• the law

In general, the source of your charity’s investment powers depends on its structure - whether it is incorporated (such as in the case of a charitable company) or not.

But in practice, most trustees have similar wide powers of investment.

Find out more about investment powers.

Your governing document

Check your governing document in all cases. It may place some conditions or limitations on the use of any power of investment. For example it may:

• say that you must or must not invest in some types of investment
• say that you must invest some or all of your charity’s money
• include other rules about how you must or may invest

Check if your governing document includes any of these rules and make sure you follow them.

Your charity should take legal advice if you are unsure about:

• your charity’s investment powers
• rules in your governing document

Private benefit

A charity’s purposes must be for the public benefit.

However, sometimes, the best way for a charity to help its beneficiaries may result in individuals or organisations receiving a private benefit.

Private benefit means any benefits that a person or organisation receives from your charity. Private benefit is ‘incidental’ where (taking account of its nature and amount) it is a necessary result or by-product of carrying out your charity’s purposes.

An investment your charity makes can involve some private benefit to others, such as business owners or other investors. This is acceptable if you are satisfied that all of the following apply to the private benefit. It is:

• no more than incidental
• necessary in the circumstances
• reasonable in amount
• in the best interests of your charity

You must use your judgement to determine whether any private benefit from an investment your charity makes is acceptable, and always act in the best interests of your charity.

Find out more about private benefit.

Financial investment

Financial investment is investing with the ultimate objective of making money by one or both of the following:

• generating income from an investment
• increasing the value of an investment (capital growth)

Any money you make from the investment is called a financial return.

Some examples are:

• renting out a building, aiming to generate income
• buying shares, aiming to generate income, growth in share value, or both
• placing cash on deposit, aiming to get interest

You can use the financial return for your charity’s purposes, but some different rules apply when your charity is investing permanent endowment.

Your specific trustee duties - financial investments

In addition to general trustee duties, there are some specific trustee duties when making financial investments:

• considering whether the investments are suitable for your charity and whether they will meet its investment objectives. This means taking account of how suitable any investment is for your charity: both the investment type (for example, shares) and particular investments within that type (for example, shares in a specific business)
• considering the need to diversify investments, if appropriate to your charity, to spread the risk (for example, owning shares in a number of different companies or sectors)
• taking advice from someone experienced in investment matters, unless you have a good reason for not doing this. For example, if you have enough expertise in your trustee group or you have limited or low value investments
• reviewing your charity’s investments at appropriate intervals

These legal duties apply to your charity if it is structured as a trust or an unincorporated association.

For charitable companies, and other corporate charities, these duties do not apply as legal requirements unless they are included in the charity’s governing document. However, the Commission expects all trustees to follow them. This will help trustees to show that they are acting in their charity’s best interests and managing its resources effectively.

Example approaches – financial investments

When deciding your charity’s investment approach, you must comply with your general and specific trustee duties set out above. This includes considering all the matters that are relevant to your charity’s circumstances and your decisions about your investment approach.

Provided you do this, the investment approach you decide on may involve one or more of the approaches from the following (non-exhaustive) list:

• aiming only for the best financial return you can achieve, within the level of risk that you have decided is acceptable for your charity
• alongside the financial return you are aiming for, avoiding investments that conflict with your charity’s purposes. For example, a health charity may decide to avoid investment in companies that mainly produce alcohol, tobacco, or highly processed food; or an environmental charity deciding to avoid investment in fossil fuels
• alongside the financial return you are aiming for, avoiding investments that could reduce support for your charity or harm its reputation, particularly amongst its supporters or beneficiaries. For example, a charity may decide to avoid investment in fossil fuels where the trustees can show that this would be in its best interests by avoiding damage to its reputation or fundraising. Investments in this category are sometimes described as bringing an “indirect” conflict with a charity’s purposes
• alongside the financial return you are aiming for, avoiding or making investments in companies because of their practice on environmental, social and governance (ESG) factors such as: climate, human rights, sustainability, community impact and board accountability. Taking this approach could be in your charity’s best interests if it could protect or enhance the financial value of your investments or returns over time, or because it will support delivery of your charity’s purposes more directly
• alongside the financial return you are aiming for, using your shareholder vote, or other opportunities that come with your investment, to influence practice at companies that your charity is invested in. As with the example above, taking this approach could be in your charity’s best interests because it could protect or enhance the financial value of your investments or returns over time, or because it will support delivery of your charity’s purposes more directly

Investments that conflict with your charity’s purposes

Where you identify that an investment (current or planned) could conflict with your charity’s purposes or harm its reputation, this is a relevant factor for your decision-making.

The law says that it is up to you to decide whether to make or not make the investment, acting in compliance with your trustee duties, and balancing the following:

• all the factors that are relevant to your charity’s circumstances and investment decisions
• the extent of any potential conflict and how likely and serious it is
• any potential financial effect of a decision to exclude the investment and how likely and serious this is

The legal underpinning published with this guidance gives more information about the law on conflicting financial investments.

However you decide to invest, you must balance the potential benefits of taking a particular approach with any risks it brings to your charity. Your approach must be in the best interests of your charity.

Social investment

In addition to the approaches shown in the list above, you can also invest with a view to both achieving your charity’s purposes directly through the investment and making a financial return.

Charity law calls this social investment.

If your charity is making a social investment, the specific trustee duties that apply are different from those that apply to financial investment.

Find out more about social investment approaches in the next section of this guidance.

Charities that mainly invest surplus cash

Placing surplus cash on deposit counts as an investment. Although the trustee duties that apply are the same, a later section of this guidance is likely to be the most helpful for charities that mainly invest cash.

The other sections in this guidance mostly provide detail for charities that have a wider range of investments.

Social investment

Not all charities make social investments. Social investments are covered separately, and in more detail here, because specific trustee duties apply.

What social investment means

The Charities Act 2011 (as amended) says that a social investment is where charity trustees use money or property with a view to both:

• achieving their charity’s purposes directly through the investment
• making a financial return

This definition covers a range of permitted approaches that are given different names by charities and others.

For example:

• a poverty relief charity making some investments in affordable housing, affordable medicine, or in companies that pay workers a living wage, alongside the financial return that the trustees are aiming for from the investment. This helps to achieve a positive impact in support of the charity’s purposes, while the charity’s money is invested
• a development charity making a loan to a small-scale farming business. This helps to achieve the charity’s purposes directly through the investment by bringing benefits to the local population, as well as by providing a financial return from interest on, and repayment of, the loan

Social investment may take a variety of forms such as:

• making loans
• taking on a commitment, for example by giving a guarantee
• buying shares in a private company

The Charities Act 2011 (as amended) gives charities a power to make social investments, except charities set up by Royal Charter or legislation. These types of charities may be to be able to rely on their governing document powers to make social investments. You should take legal advice if you are unsure about your charity’s investment powers.

Trustee duties

In making your social investment decisions you must comply with both of the following:

• your general trustee duties and the decision-making principles referred to at the beginning of this guidance
• specific legal duties that apply to social investment, set out below. These are different from the specific legal duties that apply to financial investment

In all cases, check and follow any governing document rules about whether or how your charity can make social investments.

Programme-related and mixed-motive investment

The Commission has previously used the terms:

• “programme-related investment” to describe charities investing mainly to achieve their purposes
• “mixed-motive investment” to describe charities investing to make a financial return and achieve their purposes

We no longer use these terms because we consider that the activities they describe are likely to be covered by the charity law definition of social investment.

If your charity has investments which you currently describe as “programme-related” or “mixed-motive,” you may wish to reconsider how you identify them. But it is up to you to decide which terms you use at your charity to describe investment that is within the charity law definition of social investment.

You should note that the Charities’ SORP FRS 102 still uses (and defines) the terms “programme-related” and “mixed-motive” investments, so the terms are still relevant when considering the accounting treatment for these types of investments.

Follow the guidance below for planning, managing and reviewing these investments.

What is a financial return from a social investment

A social investment achieves a financial return if, in financial terms, your charity is better off from the investment than it would be if the funds or property were spent.

This means that at least some money has to be expected to come back to your charity from a social investment. The expected financial return on a social investment can be a return of the money invested, plus capital growth or income.

It can also be where your charity only expects to receive back some or all of the money you invested, with no capital growth or income.

When you make a social investment, you can decide what you are aiming for:

• from the financial return; and
• by helping to achieve your charity’s purposes

You do not have to set out the exact return you aim to make for each of these outcomes, but you can decide to do this.

You should have some record of your aims and expected returns so that they can be reviewed if necessary. You must be satisfied that, taken together, the expected return is in your charity’s best interests.

Read this section of the guidance, if you are using your charity’s permanent endowment to make social investments.

Making decisions about social investments

When deciding if a social investment is in your charity’s best interests, comply with the decision-making principles and think about:

• how the social investment fits with your charity’s overall financial position, spending plans and plans for achieving its purposes
• what you expect from the investment - both the financial return and helping you to achieve your charity’s purposes
• the risk that the social investment will not deliver (or will underperform) on your expectations
• the cost of making the investment
• how long you plan to have your charity’s money invested, and your exit arrangements
• how you will measure and monitor performance of the social investment
• the tax treatment of the investment

You must also comply with your specific legal duties to take advice on, and review, any social investments.

Your duty to take advice

Before you make any social investments, you must do all of the following:

• decide if you should take any advice about the proposed social investment
• consider any advice you do take
• be satisfied that the social investment is in the interests of your charity, taking into account what you expect from helping to achieve your charity’s purposes and making a financial return

You may need legal, financial or accounting advice on your proposals.

Depending on the adviser’s relevant expertise this could be, for example:

• a professional person outside your charity
• a trustee
• your staff

As trustees, you must consider the advice and be satisfied that the social investment is in the interests of the charity.

Keep a record of your decisions and the reasons for them.

Your duty to review your charity’s social investments

You must review your charity’s social investments. Choose review periods that reflect your charity’s circumstances.

As part of your review, you must consider if you need any advice. Whether you need advice may change with each review.

Guarantees

Whilst guarantees are not typically investments, they can be given as a social investment.

Giving a guarantee means agreeing to be responsible for paying costs or liabilities that would otherwise be paid by someone else.

For example, a homelessness charity agreeing to pay a tenant’s rent to a landlord if the tenant does not pay it.

If you give a guarantee as a social investment, part of your motivation must be to achieve your charity’s purposes directly through the investment.

The definition of a financial return is different if you are giving a guarantee as a social investment. You achieve a financial return from giving a guarantee if one of the following occurs:

• the guarantee is not called on
• the guarantee is only partly called on

This means that, unlike with other forms of social investment, a guarantee can be a social investment without an expectation that any money will come back to your charity.

Giving a guarantee is only likely to be appropriate in limited circumstances and you should understand the risks you are taking on in giving a guarantee.

Setting your charity’s investment policy

Your decisions about your investment policy must:

• be in the best interests of your charity
• comply with your trustee duties and the principles of good decision-making

Your investment objectives

When thinking about what you are aiming for from your charity’s investments, you must decide what is in the best interests of your charity, taking account of all relevant factors including:

• the amount you have to invest
• your charity’s overall financial position, including its long and short-term needs
• how you have decided your investments should contribute to your charity’s financial position and delivery of its purposes

Depending on the circumstances of your charity, you may decide that it is best for your charity to focus on one or more of the following:

• getting the highest amount of income you can, or keeping income stable
• growing the value of your investments, or keeping value stable
• achieving your charity’s purposes directly through the investment

Some different rules apply to your investment objective when your charity is investing permanent endowment.

When setting your charity’s investment policy you should also think about your:

• timeframe for investment
• access to your charity’s money
• attitude to risk

Your timeframe for investment

You should consider your charity’s timeframe for investing.

Think about how long you plan to have your charity’s money invested.

Some investments are more suitable as short-term investments and others are better for the medium or long-term.

Your timeframe for investing can also influence the amount of risk you are willing to accept to achieve a particular level of return for your charity.

Access to your charity’s money (liquidity)

Think about whether you will be able to access your charity’s money when you need it.

You cannot convert some types of investment into cash as quickly as others.

Your attitude to risk

Most investments involve risk. As trustees, you should ensure that you:

• identify and manage risk
• consider short and long-term risks
• decide what level of risk you are willing to accept to achieve a particular level of return for your charity. As part of your duties you should be satisfied that the overall level of risk you are taking is appropriate for your charity and its circumstances
• take professional advice, where appropriate, on your charity’s attitude to risk, and the types of risk that might be relevant to your charity

Examples of financial risks you may need to consider include:

• capital risk: loss of some, or all, of the money that you invested if an investment fails
• market risk: loss because of fluctuations in the financial markets
• sector risk: loss from having too many of your investments in one sector
• currency risk: loss from changes to exchange rates of an investment valued in a different currency
• environmental, social or governance (ESG) risk: loss because of poor ESG practice by a company you have invested in
• regulatory risk: loss because of investing in unregulated investments, or in markets where regulation of financial services is less rigorous or compensation schemes are not in place

Examples of other risks to your charity that you should consider include:

• reputational risk: reduced support for your charity or harm to its reputation as a result of your investment approach
• risk posed to the achievement of your charity’s purposes from investments that conflict with them

Writing your investment policy document

You must have a written investment policy if your governing document requires you to have one or if your charity:

• is structured as a trust, or an unincorporated association, and
• gives an investment manager powers to make investment decisions on your behalf

If your charity is a company, or other type of corporate charity, you are not legally required to have a written investment policy unless your governing document says that you must. However, the Commission expects all charities that invest to have a written policy. This can be a simple document if your amount for investment is small.

You can take advice when setting your investment policy, but you should ensure that you:

• consider the advice objectively, and do what is best for your charity
• identify and manage any potential conflicts of interest that affect an adviser

Make sure that all trustees, relevant staff, sub-committees and your professional advisers are familiar with, and if appropriate can implement, your policy.

Your policy should include your charity’s purposes and plans and how your investments fit with these

It may also include the following, depending on the size and complexity of your charity:

• what, if anything, your charity’s governing document says about how you must invest
• your charity’s investment objectives, including any relevant reputational and other non-financial factors
• any sectors or organisations which you consider are in conflict with your charity’s purposes
• your timeframe for investment - short, medium or long-term
• how easily or often you need access to your charity’s money
• your charity’s attitude to risk
• your approach, if any, to ESG factors and to your engagement with the companies you invest in
• how you will monitor and review your investments, including key benchmarks
• who your investment advisers and managers are, their responsibility and remit, and how you will work with them

Review your policy regularly and discuss it with new trustees.

The Commission is unlikely to have concerns about your investment decisions or policy if you can show that you have:

• complied with your trustee duties and your governing document
• considered and balanced relevant factors
• taken advice, unless you have a good reason not to
• reached a reasonable decision

Investment types

Examples of financial investments are:

• interest-bearing cash deposits in bank or building society accounts
• shares in a private or listed company (equities)
• interest-bearing loans to a company or the government (bonds or gilts)
• loans to other charities or social enterprises
• buildings or land
• collective investment schemes, including those that only charities can invest in such as common deposit funds or charity authorised investment funds
• hedge funds
• commodities
• derivatives

Social investments can take a variety of forms such as:

• loans
• giving guarantees
• investment in the equity of a private company

Not all of these options are common or mainstream for all charities. The list is not exhaustive and new investment products and approaches will become available over time.

In all cases the Commission expects you to consider:

• how suitable any investment is for your charity - this will be influenced by your attitude to risk across your investment portfolio
• the need to have a mix of assets in your portfolios - this can protect your investments from sudden variations in the market and reduce the risk of loss

High risk investments

Some investments can be higher risk. These are only likely to be suitable if your charity has enough investments to spread risk effectively and will depend on your agreed level of risk and other factors such as the size of your charity’s investment fund.

Although you may not be able to justify an investment policy that involves taking on a high-level of overall risk, it may be appropriate to include certain high-risk investments within the overall portfolio.

You should take professional advice if you are thinking about high-risk investments. You can also find out which investments have regulatory protection.

Crypto assets are an example of a high-risk investment. It is unlikely to be suitable for most charities to invest in crypto assets. These investments are very high risk and have particularly few protections if something goes wrong.

You must understand the risks of investing in crypto assets before any investment, as they could well lose their value.

As with other high-risk investments, you should be certain that you have the expertise to manage these risks carefully. If something goes wrong, the Commission would expect clear evidence of why you made these investments and you could be liable for losses.

Find out more about charities owning crypto assets.

Investing in your charity’s trading company

Some charities set up a separate company to trade to raise money or to support their work in other ways.

Read this guidance before investing your charity’s money in its trading company.

Investing in companies connected to trustees

You should take particular care before deciding to invest in a company connected to a trustee. In particular, you:

• must check whether this is allowed by your charity’s governing document
• should consider comparisons with other available investments, and make an objective and detailed assessment of the company’s financial health and outlook
• should consider taking advice on the financial health of the company and the investment
• must review the investment at suitable intervals
• must be satisfied that conflicts of interest have been identified and managed
• must be satisfied that any private benefit to a trustee is acceptable

Before investing your charity’s money in a company connected to a trustee you must comply with your duty to consider if the investment is suitable for your charity. This only applies as a legal requirement if your charity is structured as:

• a trust
• an unincorporated association

If your charity is a company, or other type of corporate charity, you are not legally required to do this unless your governing document says that you must. However, the Commission expects all charities that make financial investments to consider if an investment is suitable for their charity.

Taking advice and delegating

Trustee oversight

You and the other trustees have overall responsibility for the investment of your charity’s money.

You can delegate some decisions about investments to others, but as trustees the responsibility remains yours.

Depending on the amount your charity has to invest, you may find it helpful to:

• have at least one trustee with specialist knowledge of investments
• think about what other kinds of experience and knowledge would help your charity to deliver on its investment policy and objectives
• have an investment sub-committee of trustees and staff to advise you

Taking professional advice

You must take professional advice before making and reviewing investments, unless you have a good reason not to if your charity is structured as:

• a trust
• an unincorporated association

If your charity is a company, or other type of corporate charity, you are not legally required to do this unless your governing document says that you must. However, the Commission expects all charities that make investments to do this.

Professional advice should be impartial and given by someone experienced in financial and other matters relevant to your charity’s investment approach. Advice is usually given by:

• an investment manager or adviser
• a trustee or other individual with relevant experience and ability

You may decide that you do not need external professional advice. For example, you may have:

• enough expertise at your charity
• limited, low value investments

Keep a record of your reasons if you decide not to take external professional advice.

Getting professional advice from a trustee

If you are a trustee who gives professional advice to your charity, you are responsible for the quality of that advice.

Like other advisers, you may be held responsible if your charity does not meet its investment objectives because of poor advice.

If your charity takes professional advice from a trustee, you must:

• consider the advice objectively, and do what is best for your charity
• identify and manage any potential conflicts of interest that affect a trustee who is giving advice

Using an investment manager

You may need further professional help to manage your investments.

Investment managers can do either or both of the following:

• give you advice about planning and managing your charity’ investments (advisory management)
• have some powers to make investment decisions on your behalf (discretionary management)

Many charities run a formal tender process when choosing an investment manager.

In selecting them, you should think about:

• how they will deliver on your investment policy, including any reputational and other non-financial objectives
• the type and number of portfolios the provider manages
• the value of the assets they manage
• their experience of managing charity investments
• their fees and charges in the short and long-term
• their investment selection and risk-review process
• their ability to adapt their approach to suit your charity
• if you need more than one investment manager - to help to spread risk or to access a particular product or market

Compare investment managers and costs and consider meeting with shortlisted providers.

When selecting your manager you should be satisfied that:

• the manager can deliver on your charity’s investment policy and objectives
• reporting arrangements are in place
• you know what payments and charges to expect
• you know about any benefits the manager or anyone else will receive under your agreement with them
• the costs of the arrangement are good value for your charity’s money - you can take advice to help you decide this

Delegating decision-making to an investment manager (discretionary management)

There are some extra rules if you give your investment manager powers to make investment decisions on your behalf.

You must have both of the following if your charity is structured as a trust or an unincorporated association:

• a written investment policy statement
• a formal contract with the manager

If your charity is a company, or other type of corporate charity, you are not legally required to do this unless your governing document says that you must. However, the Commission expects all charities that make financial investments to do this.

Your investment policy must cover the following:

• your investment manager’s remit and responsibilities: what decisions they can and cannot make
• guidance for your manager as to how investment decisions should be made on your charity’s behalf
• that the manager’s delegated functions will be carried out in your charity’s best interests

Your investment manager should not prepare your investment policy. That is your role as trustees. But you:

• can take independent expert advice on its content
• might find it helpful to consult your investment manager to ensure that its terms are workable and achievable

Your formal contract with your discretionary investment manager must require them to act in line with your investment management policy statement. You can include this requirement in the contract.

The contract must not, unless it is reasonably necessary:

• allow the manager to appoint a substitute
• reduce the investment manager’s normal duty of care or place a cap on their liability for breach of contract
• allow the manager to act in situations that might lead to a conflict of interest

You should review the contract regularly.

If you have delegated voting responsibilities to your investment manager, you should be aware of the manager’s voting policy. You should take reasonable steps to understand how your investment manager has voted on your behalf.

Reviewing the performance of your investment manager

If you have appointed an investment manager for your charity, you should regularly review the service that they provide. This should happen independently of the manager.

You and the other trustees should carry out this review yourselves, or an independent person or organisation can work with you.

As part of your review, you must consider:

• how well the manager is performing
• if the manager is complying with your charity’s investment policy
• if the terms of the appointment are still appropriate
• if the manager is still suitable for the role

You should be prepared to intervene by, for example:

• giving directions to your investment manager
• changing or ending your agreement with them

Investing in a pooled or collective investment fund or scheme

This is another way to access professional management of your charity’s investments, alongside other benefits.

These arrangements allow you to combine your assets for investment with those of other investors, including some that only charities can use.

Investing in a scheme like this can be part or all of a charity’s approach, if the trustees decide that this is appropriate.

If you have smaller sums to invest, pooling them with other investors’ money can save you money and help you to spread risk.

Before investing in a pooled fund you should be satisfied that it meets your charity’s needs, taking account of:

• the aims of the scheme and how it fits with your investment policy
• the scheme’s approach to any reputational and other non-financial factors that are part of your charity’s investment policy and objectives
• how much control you have over the decisions taken in the scheme
• the suitability of the investment manager
• how it reports performance
• its mix of assets
• how it spreads risk
• its costs and charges

Review participation in a pooled fund regularly to make sure that it continues to meet your charity’s needs.

Find out more about pooled or collective investment funds .

Services for holding investments

If your charity is a company or Charitable Incorporated Organisation (CIO), or other corporate body, it can hold investments in its own name.

For other charity types, such as trusts and other unincorporated charities, the trustees have to hold investments in their names on their charity’s behalf. For these charities it can save costs and be more convenient to appoint a nominee or custodian to hold investments, but any type of charity can make these appointments.

Reviewing and reporting on your investments

You should agree the target for returns and other outcomes that you will use to assess the performance of your investments over an agreed time period.

Consider taking independent expert advice to help you set your targets.

If your charity uses an investment manager, they can work with you to review the performance of your charity’s investments.

You can also compare performance with those of charities with similar investment objectives.

You should review your charity’s investments on a regular basis, and you may need to hold a review if other events happen such as if:

• your investments underperform against your targets
• there is a change in economic outlook
• your charity’s financial position or priorities change significantly

Reporting on your investments

You must write a trustees’ annual report if your charity is registered with the Charity Commission.

Your annual report must include an explanation of:

• how your charity’s investments have performed during the year
• what your investment policy is, including any non-financial aims that you have for your charity’s investments

Smaller charities or charities with few or less complex investments do not need to include detailed information.

Find out more in Charity Reporting and Accounting and the Charities’ SORP.

Investing your charity’s permanent endowment

Put simply, permanent endowment is property that your charity must keep rather than spend.

To find out whether your charity has permanent endowment investments, look at:

• any documents that tell you how investments must be kept and used
• any documents that were used to give investments to your charity
• your charity’s governing document

It can be difficult to tell if property is permanent endowment. Always take advice if you are unsure.

Standard rules

If your charity has investments that are permanent endowment you must usually:

• keep the capital invested, including reinvesting any capital growth
• only spend the income

You should ensure that you manage permanent endowment investments in a way that balances your charity’s need for:

• enough income now
• enough growth for the future

This can cause difficulties where interest or dividend income are low and capital gains are high.

Adopting a total return approach can allow trustees of a permanently endowed charity to take steps to address difficulties caused by the standard rules.

Total return investment

You can adopt a ‘total return’ approach to managing your charity’s permanent endowment investments.

This allows you to spend from all investment returns, whether received as income or capital growth. It means that you can decide how much of your total investment returns:

• to spend on your charity’s purposes
• to reinvest

To adopt a total return approach you must make a formal decision (by passing a resolution).

If you adopt a total return approach, as trustees, you must manage your permanent endowment investments in a way that allows your charity to further its purposes both now and in the future.

Find out more about total return, and the rules you must follow when you have adopted a total return investment approach.

The standard rules apply if you have not formally adopted a total return approach.

Permanent endowment and social investment

If your charity has adopted a total return approach to the investment of its permanent endowment, you can separately resolve (make a formal decision) to use some or all of your total return fund to make social investments that you expect may provide a negative or uncertain financial return.

Any losses must be offset (over time) by other gains in your charity’s total return investment portfolio. This is to ensure that your charity’s permanent endowment keeps its overall value in the long-term.

As trustees, you must follow:

• your general and specific trustee duties when considering making social investments that are expected to make a negative or uncertain financial return
• the other rules in the Charities (Total Return) Regulations to make social investments of this type

Find out more about permanent endowment.

Tax on investments

You may have to pay tax on your charity’s investment income if you cannot satisfy HMRC that you have made an approved investment or loan for the benefit of your charity, rather than so your charity or anyone else can avoid tax.

This guidance does not cover the tax implications of investments.

Read HMRC’s guidance for charities to find out more about tax rules for charities, including:

• HMRC’s approved list of investments
• how tainted donations rules apply to gifts of investments
• the tax treatment of trading profits
• the tax treatment of investments in a company connected to one of your trustees

Advice for charities that mainly invest cash

Your charity may keep money in a savings or deposit account. These arrangements count as investments.

The same legal duties (set out at the beginning of this guidance) apply to decisions about investing in cash as to other investment decisions. If your charity mainly invests cash you can take the following actions to help you to comply with these.

Protect your charity’s money

You should only deposit your charity’s money with a trustworthy provider. For example, banks or building societies authorised by the:

• Financial Conduct Authority
• Prudential Regulation Authority
• relevant financial regulator in any other country

Find out what the protection arrangements are if your bank or building society fails, whether in the UK or abroad.

You can use the FSCS Bank & savings protection checker - to see how much of your money is protected.

If you have a substantial amount to deposit, think about setting a maximum amount that your charity can place with one provider. This can help you to reduce the risk of a large loss if a provider fails. You need to balance the reduced risk against a lower rate of interest on deposits of smaller sums.

Choose an account

You should consider:

• the rates of interest on offer at different providers
• when interest is paid
• if interest is paid gross or net of tax - if net make sure you can reclaim the tax
• any charges or penalties that apply if you want to access your money at short notice or close your account
• any reputational and other non-financial factors that are part of your charity’s investment policy and objectives, and if these are relevant to your choice of account

Your charity may need more than one account. For example, accounts that allow you to access money at short or longer-notice.

Write a simple investment policy

This should cover:

• where and how long your charity can deposit cash
• the maximum amount your charity can deposit with one provider
• your charity’s approach to deposits that are short, medium or long-term

Get professional advice where appropriate

Where you need advice this should be from someone with suitable knowledge and experience.

Review arrangements regularly

Review your banking arrangements regularly to make sure:

• they still meet your charity’s needs
• your deposits still have suitable protection
• any charges or rates of interest are still competitive
• you are satisfied with the level of service provided

Other ways of investing cash

There are other ways of investing cash, particularly for larger charities. Take advice about your options.

Common deposit funds allow you to combine your assets for deposit with those of other charities. By pooling money with other charities you can get a higher rate of interest.

Investing in a scheme like this can be part or all of any charity’s approach.

Find out more about common deposit funds.

Investing reserves

Find out more about what you should consider when investing your charity’s reserves.

Legal note

The main sources of law relevant to this guidance are:

• Trustee Act 2000
• Charities Act 2011 (as amended)
• The decision of the High Court in Butler-Sloss & Ors v The Charity Commission for England And Wales & Anor [2022]
• The Charities (Total Return) (Amendment) Regulations 2023
• Investing charity money: legal underpinning