Charitable trusts are public trusts that confer a benefit to the community.

Authors Avatar

Charitable trusts are public trusts that confer a benefit to the community. They are designed for particular purposes and as such have no human beneficiaries. Charitable trusts are accorded a number of concessions over other trusts in terms of perpetuity, certainty, and taxation. In order to earn these concessions, especially in relation to the relief from taxation, a trust must be of a public nature.    

Whether a trust qualifies as a charity entitled to tax concessions depends on whether it meets the essential requirements of a charitable trust. Although there is no statutory definition of charity, in order for a gift to be charitable it must be for a purpose which falls ‘within the spirit and intendment’ of the Statute of Elizabeth, also known as the Charitable Uses Act 1601; promote a public benefit; and lastly be for a purpose that is wholly and exclusively charitable.

In looking at the definition of ‘charitable purpose’ Viscount Simmonds in IRC v Baddeley stated that

“There is no limit to the number and diversity of ways in which a man will seek to benefit his fellow men.”

This suggests that the courts will generally find a purpose trust to be charitable wherever possible and will avoid consequences of invalidity. This in effect proposes that the definition of ‘charitable purpose’ has and will be broadened over the years.

It is, however, important to note that there is another aspect to the definition of ‘charitable purpose’. The second aspect concerns fiscal privileges, which provides the threshold for tax relief.

In Commissioners for Special Purposes of the Income Tax v Pemsel (Pemsel's case), the judgment of Lord MacNaughten embedded the four categories of charitable heads into law. Theses were trusts for the relief of poverty; trusts for the advancement of education or religion; and trusts for all other purposes beneficial to the community. The Pemsel's case held that for the purposes of exemption from income tax the definition of ‘charitable purpose’ should be the legal and technical definition deriving from the Charitable Uses Act 1601, which lists charitable purposes as:

“the relief of aged, impotent and poor people…schools of learning, free schools, and scholars in universities, some for the repairs of bridges…churches…and others from relief or redemption of…other taxes…”  

It has been argued by judicial attitudes that such a list is “vague and old fashioned”, merely because of the fact that the scope of charity originates from the preamble to the 1601 Act, and therefore takes into account of what was vital to the society in those days.

Join now!

When observing relief of poverty, it can be established that the law concerning this head is quite controversial. The reason being that in some cases people who benefit from this head may in fact be well off. The courts have not attempted to define poverty in precise terms but have stated that it does not mean destitution. Therefore it is dependent on case law to establish whether or not trusts are valid charitable trusts. In Re De Cartaret, a trust was created for the annual allowances of £40 each to widows and spinsters whose income was between £80 and ...

This is a preview of the whole essay