VIII - Charitable purpose trusts Flashcards
Does a charitable purpose trust require beneficiaries?
They don’t have a beneficiary who has a vested interest in trust property: object of trust is charitable purpose. They are enforced by the AG. (Attorney General)
Why does the law permit charitable trusts?
- Charitable purpose trusts (unlike private purpose trusts) are upheld because of their value to society.
What advantages do charities enjoy?
- Charities enjoy a number of fiscal and legal advantages, including:
- Fiscal: Relief from income tax, corporation tax, CGT, stamp duty, VAT and inheritance tax.
- Legal: Exemption from the rule against perpetuities and limitation periods on bringing enforcement proceedings.
What tax advantages do charitable trusts have?
- No income or incorporation tax. No capital gains tax, gains from VAT with regards to some supplies. If you can become a charity, you are tax exempt from a wide range of situations.
- Recognising a purpose as a charity has huge tax implications. Dingle v Turner – automatic to tax relief
- When deciding whether there should be a charitable purpose trust, should the courts decide whether it exists for the public benefit? because public money will be spent for this purpose: not pay VAT or income tax. Money given to charity will not be taxed. These moneys cannot be spent on education etc – there is an opportunity cost to recognising this charity.
- Thrust of this argument of lord Cross in Dingle v Turner has been rejected largely by courts. For tax purposes is purely for parliament to decide. Court should not take this into account but Lord Cross’ views have been influential.
What are the legal advantages of charitable trusts?
- Rule against perpetuities does not apply to CP
- No limit as to how long it can be conveyed
- Unlike most private trusts, trustees can act by a majority vote as to how the charitable property will be used. Most private trustee require trustee to act unanimously unless provision saying otherwise
- No limitation period for bringing enforcement proceedings
- Private period – limitation period for sueing trustee (6 months)
- This limitation period does not apply to CT
Charitable purposes are those which:
- Benefit the public; and
- On the authority of statute and common law are defined as ‘charitable’
In order for a purpose to be charitable:
- The character of the purpose must be legally charitable recognised as being a charity.
- The purpose must satisfy the public benefit test: it must be beneficial to society;** and it must **benefit a significant section of the public (as opposed to a class of private individuals as opposed to a class, must exist for a public benefit.
- The purpose cannot be political Cannot be specific for the repeal of a legislation – this is political.
- The purpose must be exclusively charitable (eg: cannot involve the distribution of profits to private individuals as this would be a private trust)
What does:
- The character of the purpose must be legally charitable:
mean?
- Charities Act 2011: Recognised Heads of Charity
- “The Old law” s. 3(1)(m)(i) Charities Act 2011
- Growth by analogy with Existing Charitable Purposes
What is s2-3 Charities Act 2011?
These are recognised Heads of Charity.
Charities Act 2011, ss. 2-3 provides a list of purposes which are regarded as charitable. S2(1)(a) and s3(1) gives statutory meaning of charitable purpose but it does not constitute a legal definition of charitable purpose, only lists.
Why is the old law under s3(1)(m)(i) CA 2011 relevant?
Older case law is relevant because s3(1)(m) specifically preserves any charities recognised by old law (pre 2006 common law), which slowly recognised new charities over time. Need to look at history to work out what charities have been recognised.
Scottish Burial Reform v Glasgow Corporation
per Lord Reid: when looking at if a charity, prior to 2006 and 2011, the law recognised what was charitable by looking at the statute of Elizabeth.
Ask if it is within the statute, if not, ask whether it can be analogised within the state.
Must show that the “public benefit is of a kind within the spirit and intendment of the Statute of Elizabeth I.”
“all that is necessary to bring the objects and activities of the appellants within the spirit and intendment of the preamble to the Statute of Elizabeth I is to find an alogous decided cases”
Held: the question for HL was whether trust for cremation of corpses was charitable (this was not listed in 1601 preamble). Held: it was charitable, by analogy of upkeep of graveyards and churches (contained in 1601). Analogy built upon analogy. Trust for repair of churches are in 1601 preamble and by analogy the repair and upkeep of graveyards and churches was an analogy held correct, within this, the cremation of corpses fell within this exception of an exception.
Preamble to the Statute of Charitable Uses 1601:
The statute of Elizabeth I
If not listed within the 1601 preamble or has not been previously argued, the courts could argue by analogy.
When courts were presented with a new purpose, deciding whether it was a charitable nature, the courts would look towards the 1601 preamble, if the purpose was not here, they would say “is this new purpose analogous to anything in the preamble”.
Facts of Scottish Burial: the question for HL was whether trust for cremation of corpses was charitable (this was not listed in 1601 preamble). Held: it was charitable, by analogy of upkeep of graveyards and churches (contained in 1601). Analogy built upon analogy. Trust for repair of churches are in 1601 preamble and by analogy the repair and upkeep of graveyards and churches was an analogy held correct, within this, the cremation of corpses fell within this exception of an exception.
What does s(1)(m)(ii) and (iii) mean?
This analogising has been preserved within the 2011 statute within the (s3)(1)(m). This analogising reasoning means that even if the purpose is not within a-l, if it is analogous to these purposes, then they can recognise it as a new purpose within (m). This form of analogising reasoning has been popular with courts – it means the law will be flexible. As society changes, new charitable purposes can be. In 1601 would not have recognised trust for the provision of cremation services, but now it has been.
Criticisms of the rules on identifying charitable purposes
- The analogical reasoning employed by the courts is unprincipled
- Analogical reasoning does not account for how the consequences of charitable status have changed over time.
- Fiscal Consequences : lord Cross’ concerns
- The distinction between Purposes and Activities
Vancouver Regional v MNR
The analogical reasoning employed by the courts is unprincipled
Access to internet is not within the statute. But by analogy the statute “ highway and bridges” was analogous to the internet. Holding a trust for internet services are therefore charitable. Such reasoning between highways for internet and highways has drawn criticism.
The preamble [to the Statute of Charitable Uses] speaks of repair of bridges, ports, causeways and highways. These were, of course, at the time essential means of communication…
“it is within the spirit and intendment of the preamble…’”
What are the consequences of chartiable status having changed over time?
Recognising charitable purposes are important for tax relief and the benefit of society. But in past, recognising purposes as charitable in nature did not have those consequences. The Mortmain Act held: gifts of land for charitable purpose are void. There was a concern that it should not be given over for charitable purposes and land held in perpetuity.
In the past, recognising a purpose as charitable had the effect of rendering the gift void. As a result, the courts adopted a wide definition of charity in order to set aside gifts of land.
Thornton v Howe
Facts: Land given on trust to publish the religious works of Joanna Southcote. Romilly MR called her works “foolish” and “ignorant”, but nonetheless held it a charitable purpose. As a result, it was void under the Mortmain Act 1736, 9 Geo II, c. 26. Southcote declared herself pregnant by the holy ghost. The testatrix bequeathed land for publishing works of Southcote. Is this a charitable purpose: if so, the gift of land would be void. Romilly MR held: this was a charitable trust for the advancement of religion. Therefore, under the Mortmain act, the trust was void. A wide definition of charitable purposes was given by the mortmain act which now gives advantage to other people.
New purposes can be recognised by analogy to the previous case law, even though the effect of the gift of land was to make the gift void. The fact it was recognised as a valid charitable purpose meant that later charities can argue by analogies that their purpose is similar and so should get tax exemptions.
Dingle v Turner
Fiscal Consequences : lord Cross’ concerns
- Charitable status automatically entitles a purpose to significant tax exemptions.
When considering whether a purpose is charitable, the courts do not consider specifically one purpose over another because taxation is a matter for parliament and don’t for courts or charity commission. Nevertheless, the courts avoid the obvious fact that if they recognise a trust as charitable, it will have implications for the revenue.
Lord Cross -
“cannot avoid having regard to the fiscal privileges accorded to charities… Charities automatically enjoy fiscal privileges which with the increased burden of taxation have become more and more important and in deciding that such and such a trust is a charitable trust the court is endowing it with a substantial annual subsidy at the expense of the taxpayer”
What did Lord Cross in Dinge v Turner think?
Lord Cross strongly says that a court OUGHT to consider whether a given purpose will be beneficial to society so that it justifies the tax exemptions. He emphasises that immunity for certain privileges apply for any purpose recognised as charitable, but this is dangerous water, even at HL level. Three other law lords disassociated himself from Lord Cross’s comments
What did Viscount Dilhorne in Dinge v Turner think?
He refused to enter the debate with Lord Cross about the fiscal privileges of a legal charity.
Although he doubts whether the existence be a determining factor in deciding whether a gift or trust is charitable.
R (Independent Schools) v Charity Commission
“Rather, [matters of] tax relief…[are] for Parliament, not for us, to determine.”
Showing the Lord Cross’ approach should not be followed.
Criticisms against the tules on identifying charitavble purposes
- unprincipled/unstructured
- In the 19th Century, finding a purpose as charitable could have effect of making gift void, as a result, the chancery developed a broad definition of what a charity was and even though the Mortmain acts are repealed, the case law remains so modern organisations can use these 19th century case law and be considered charitable. Consequences of charitable status has change over the time.
- Because of the recognition that a purpose is of charitable bring, there is an automatic tax relief, should courts ought to take into account the fiscal consequences of their decision?
- Is this a good use of the money – what is the opportunity cost. Held: this is a matter for the government. Nevertheless, automatic tax uplift which charities receive brings courts closely within the political relief and is this justified.
- Distinction between purposes and charities.
J Garton, Charitable Purposes and Activities
This distinction between purposes and actives presupposes a “bright dividing line” between the two – Said Garton. He said that sometimes the distinction is merely a question of degree.
Garton said: ‘Sometimes the distinction between a purpose and an activity is merely a question of degree.
- J Garton (2014) says this distinction presupposes a “bright line dividing purposes from activities”
- This has proven especially controversial where charities engage in political activities because political purposes are not considered charitable in English law.
National Anti-Vivisection Society v IRC
HL
NAVS was set up to achieve the repeal of the cruelty of animals act 1876. The society argued the repeal of act was ancillary (ancillary activity) to its central purpose – protecting animal welfare. The HL rejected this and even aiming for the repeal of act was all charity did and as such, this activity was its main purpose. Campaigning for repeal of legislation or change in government policy where it is the SOLE purpose of the organisation, so was held not to be a charitable purpose because of its political nature. In this case, because the sole activity was for the repeal of legislation, they said it was A activity but sole purpose and as its sole purpose was political it was not charitable. Not a drawn line between purposes and activities, sometimes we look at the activities to work out what the purpose of the trust are.
Lord Normand thought you can aim to repeal the law but it should not be the SOLE objective. If sole purpose was the repeal of legislation it would be political. In certain circumstances, we must look to the charities activities to discover the purpose, as such a bright dividing line may not exist in practise. This distinction between activities and practises may create uncertainty when deciding whether to recognise new purposes as charitable.