Restricted funds of charities in Scotland
Produced in partnership with Gavin McEwan of Turcan Connell
Restricted funds of charities in Scotland

The following Private Client guidance note Produced in partnership with Gavin McEwan of Turcan Connell provides comprehensive and up to date legal information covering:

  • Restricted funds of charities in Scotland
  • Unrestricted funds—general use of assets
  • Designated funds
  • Restricted funds
  • Restricted fund reorganisations
  • Reorganisation process—all restricted funds
  • Reorganisation process—large restricted funds
  • Reorganisation process—small restricted funds
  • Reorganisation process—very small restricted funds
  • Reorganisation schemes at OSCR’s instance
  • more

Unrestricted funds—general use of assets

The general principle which applies to the use of charity assets is that absent any specific restriction, both income and capital should be used in line with the charity’s purposes and with a view to the provision of public benefit.

Where funds are held in unrestricted form, there may still be limits on whether income and capital can be spent on the charity’s assets. Any such limits would normally be contained in the charity’s constitution. Constitutions may apply conditions on the distribution of income and on whether income may be carried forward for expenditure in future years or accumulated and converted to capital. Conditions on the distribution of capital may also be set out in the constitution. Where a constitution is silent however, the normal expectation is that charity trustees will, as a minimum, distribute their income and be free to distribute capital.

Funds which are not unrestricted will typically fall into three main categories:

  1. designated funds (which are truly a subset of unrestricted funds)

  2. restricted funds (which, generally speaking, include the misnamed category of expendable endowments), and

  3. endowments (sometimes also referred to as permanent, non-expendable or income-only endowments)

Designated funds

Charity trustees may set aside part of their unrestricted assets for a designated purpose. Such funds are treated for charity accounting purposes as designated