Memorandum from the Institute of Legacy
Management (DCH 284)
SUMMARY
S36 Charities Act 1993 provides a safeguard
for charities selling land they have bought or occupied. However,
the section can also catch land left to charities by Will, land
in which the charities have never sought to have a proprietorial
interest. Compliance with s36 in these circumstances imposes a
significant and unnecessary burden on charities and, in certain
situations, upon Personal Representatives of estates. The Institute
recommends very strongly that the Charities Bill should now incorporate
an amendment to s36 to specifically exclude land left to charities
by Will.
THE ROLE
OF THE
INSTITUTE
The Institute of Legacy Management (ILM) was
set up in 1999 to provide training and support for Legacy Officers
in charities. It has some 340 individual members, who work for
over 250 charities. The Institute provides a qualification in
legacy administration, a range of day and half-day courses and
conferences and symposia. Via its website, ILM also provides factsheets
for members and solicitors.
ILM has just published, with the Law Society,
"Charities as Beneficiaries" for solicitors and works
also with the Society of Trust and Estate Practitioners (STEP)
and the British Bankers Association to enhance standards of probate
administration. For further information about the Institute, visit
www.ilmnet.org.
THE LEGISLATION
Prior to the 1992/3 Acts, s29 Charities Act
1960 related to land held by or in trust for a charity and provided
that no disposition of either property forming part of the permanent
endowment of land held by or in trust for a charity which had
been occupied for the purposes of the charity could be sold, leased
for more than 22 years, mortgaged or charged as security for repayment
of money borrowed unless with the consent of the court or the
Charity Commission. (The underlining is ours).
Thus land left to charities under Will was not
subject to the Act. This would seem appropriate, for land left
under Will is land that a charity has never sought to own for
its own purposes, much less occupied. As part of residue, it is
simply one of many assets in an estate which must be administered
by the PRs.
Section 32 of the 1992 Act superseded the 1960
Act and imposed an overall prohibition on the disposal of land
held by or in trust for a charity without an order of the court
or the Charity Commission. The section was repealed and re-enacted
without alteration as section 36 of the 1993 Act.
WHEN DOES
S 36 APPLY TO
LAND LEFT
BY WILL?
In the past few years, charities and solicitors
have become increasingly uncertain as to precisely in which circumstances
s36 would apply to land left by Will and who bears the responsibility
for compliance. Decisions of the Charity Commissioners,
Volume 4 (September 1995) clarified whether in it necessary for
personal representatives to comply with s36 & s37 of the Charities
Act 1993 regarding the sale of land left in wills to charity.
In the Commissioners' view, in relation to sales of land left
in wills to charities, either as specific devisees or residuary
legatees, it was not.
There appeared, then, to be no problem if property
was sold in the course of administration of the estate. However,
charities began to question what happened, for instance, where
a will trust including land fell in and the will trust passed
to charities absolutely. A number of further problems then emerged,
on which legal advice has been not consistent. Indeed, legal advice
to at least one major charity has been that, for safety, its Trustees
should comply with s36 in every case in which land is included
in residue from which it benefits.
THE PROBLEMS
Firstly, definitions of when the administration
is complete vary. The legal definition relates to the publication
of estate accounts and final distribution to beneficiaries. However,
the Inland Revenue, for Capital Gains Tax purposes, prefers the
test of whether residue has been ascertained as the moment when
a beneficiary becomes the chargeable owner of an estate asset.
This is crucial, for if the property has gained in value since
death (as has been the case some years for the majority of property
pasing by Will), the charity's share of the proceeds may be subject
to CGT if the PRs have not taken action to appropriate or transfer
beneficial or legal interest.
Secondly, if the charities do request the PRs
to appropriate the beneficial interest in order to use their charitable
CGT status, it was unclear if the sale was caught by s36, and
if so, who was responsible for compliance—an address to
Charity Legacy Officers by a representative of the Charity Commission
in May 2003 indicated for the first time that it could be the
PRs. What if residue is shared between charities and private individuals
(eg family members)? Who has responsibility for gaining the surveyors'
report on valuation and marketing, and paying for it, the PR's
or the charities, and is it for the charities' Trustees to confirm
that the Act has been complied with in relation to the disposal,
or the PRs? These are just a few of the issues that have come
up in recent months and which we have tried to clarify in factsheets
prepared with the help of the Charity Commission.
THE CURRENT
SITUATION
ILM has recently sought to obtain an Opinion
from Christopher McCall QC to clarify these issues. As we have
had to revert to Mr McCall on a number of points before he is
able to issue a final Opinion and to settle a factsheet, we have
been delayed in putting forward this submission. Whilst Mr McCall's
draft Opinion offers some clarification as to responsibilities
and procedures, there remain a number of concerns. One of these
is illustrated by the following situation.
RESPONSIBILITY FOR
COMPLIANCE RE:
APPROPRIATION TO
MITIGATE CGT
Barclays Bank is Executor in a case where there
has been substantial gain on a property since death and they have
recently understood that the McCall Opinion will put the responsibility
for compliance with s36 on the Executors. The Head of Barclays
Fiduciary Standards believes that the onus of the responsibilities
and risks associated with s36 procedures is not one that the Bank
would wish to take on and that the Bank does not think that realistically
charities can expect executors to accept this burden. If Executors
do not take on the responsibility in this frequently-encountered
circumstance, charities are faced with either having the property
transferred to them for sale in order to use their CGT exemption,
which may introduce responsibilities and liabilities that it would
be unreasonable to take on, or losing out on the CGT exemption,
potentially several millions of pounds a year to the charity sector
in lost legacy income. There are additional problems here if more
than four charities share residue—property cannot be assented
to all.
This illustration is but one of a number of
concerns regarding the application of s36 to deceased's estates
which are now bringing real problems and burdens to charities
notwithstanding the draft Opinion from Counsel. We have described
the situation at some length in order to underline the level of
our concern. We look forward to discussing the situation in detail
in due course to assist the drafting of the Bill.
July 2004
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