Charitable gifts in wills take many forms. When a charity is left a share of the residue of a person’s estate - that is, a proportion of what remains after the estate’s liabilities and administration expenses have been paid - an important question to ask is: “What assets comprise this share?” Is there simply cash to distribute, or are there other assets within the estate? If there is, for example, real property in the estate, then there is often a tax advantage if it is transferred to the charity before it is sold.

Transferring an asset in its current form, rather than selling it and distributing the proceeds, is referred to as ‘appropriating’ it to the beneficiary. Personal representatives have a statutory power of appropriation under the Administration of Estates Act 1925. This power allows them to satisfy a beneficiary’s interest in the estate under the will by transferring property directly to a beneficiary.

If a property owned by the estate is sold and a gain is realised, capital gains tax will be payable by the estate, and therefore indirectly by the charity beneficiary. However, if the property is first transferred to the charity beneficiary, in satisfaction of its interest under the will, and the property is subsequently sold, capital gains tax will not be payable due to the charity’s tax-exempt status.

The charity itself, rather than the executors of the estate, will then be the property’s beneficial owner. The charity may however wish for the executors to retain the legal title for the time being and arrange for its sale. As such, they would need to comply with the charity land disposal rules under the Charities Act 2011 in respect of any sale, transfer, lease or other disposition of the property, unless the charity is ‘exempt’.

Charity land disposal rules

Under the charity land disposal rules, before entering into an agreement for sale, lease (for a term of more than seven years) or other disposition of the land, a non-exempt charity must either obtain:

  • a court order (or Charity Commission permission); or
  • a written report from a qualified surveyor on the merits of the proposed transaction. This report needs to cover numerous aspects of the transaction including the market value of the property and advice on VAT.

If the property is held on trust for the charity with specific requirements as to the purposes for which the property can be used by it, public notice must be given by the charity trustees of the proposed disposal. The notice must allow at least a month. If any representations are made by the public within the timeframe, the charity trustees are required to consider them.

In addition, in the contract for sale, lease or other disposition of the land, a statement must be included detailing that the property is owned by a charity, whether the charity is exempt and whether it falls under the charity land disposal rules. The charity trustees must also confirm within the document disposing of the land that they have either obtained a court order, permission from the Charity Commission or otherwise complied with the charity land disposal rules.