Social investment is of increasing importance to society and is an area which many charities wish to engage with, however many have been wary of making such investments due to perceived legal barriers. Following consultation earlier this summer, the Law Commission has published recommendations regarding the law on social investment by charities, providing clarity around the definition of social investment and finally lifting the barriers for trustees, to innovate in this burgeoning field.
Darren Hooker, Solicitor at Stone King, said: “The Law Commission’s recommendations provide the much needed clarification that the charity sector has long required and will now enable many charities to confidently progress social investment proposals.”
Key points from the recommendations developed by the Law Commission include:
- A definition of what social investment means - the use of funds to achieve both a financial return and the furtherance of a charity’s purposes
- Conferring with charity trustees to create a new statutory power to make social investments in order to alleviate current uncertainties
- Extending the new statutory power to include charities with investment permanent endowment funds
- Exploring opportunities for charities to obtain prior clearance from HMRC in relation to the tax treatment of a proposed social investment, ensuring the tax position for such investments are in alignment with the legal position
- Amending tax legislation to include the Law Commission’s suggested definition of social investment to ensure continuity in applications from a legal and tax perspective
- Implementation of specific duties which apply to trustees in respect of social investments
Darren continued: “As a law firm that specialises in working with charities and not for profit organisations, our understanding of the recommendations and the basis upon which they have been made, ensures we can confidently guide clients through the social investment process should trustees feel that it fits with their charity’s mission.”
“Going forward we very much hope that these recommendations will be implemented by this Parliament, with consequent improvements made to Charity Commission and HMRC guidance and procedures. In turn this should lead to an increasing interest in the field of social investment by charities and a recognition that charitable resources can be made to work harder and to achieve both a financial and a social impact.”
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