Ex gratia payments: greater flexibility for charity trustees?

Charity trustees are required to apply their charity’s funds in furtherance of its charitable purposes. However, circumstances can arise where trustees consider that, although there is no legal obligation to make a payment, there is a compelling moral reason to do so. These payments are known as “ex gratia payments”. 
 

Since 27 November 2025, changes introduced by the Charities Act 2022 have made it easier for charities to deal with certain ex gratia payments, reducing the need to seek Charity Commission approval in some cases.

What has changed?

The reforms introduce three important changes.

First, the test for making an ex gratia payment is now objective. Rather than trustees having to feel that they are morally obliged to make a payment, the question is whether, in all the circumstances, they could reasonably be regarded as being under a moral obligation to do so.

Second, charities can make certain small ex gratia payments without obtaining prior Charity Commission approval, provided the statutory conditions are met. The applicable financial threshold depends on which of four bands the charity falls into, with each band being based on the charity’s gross income in the previous financial year. If a charity has income of less than £25,000 the maximum individual payment they can make is £1,000; for income above £25,000 but below £250,000 then the maximum payment is £2,500; if income is above £250,000 but below £1 million then the maximum payment is £1,000; and if income exceeds £1 million then the maximum payment that can be made is £20,000. 

Third, as the decision no longer requires a personal judgement by the trustees, they can delegate decisions on ex gratia payments to an appropriate person or committee, such as a member of staff or a trustee sub-committee. However, delegation does not remove the trustees’ ultimate responsibility for ensuring that decisions are lawful and properly made.

When might the powers be useful?

A common example concerns legacies. A person may leave part of their estate to a charity but subsequently express a clear intention to benefit an additional family member. If they die before validly updating their Will, the charity may receive a legacy that does not reflect the deceased’s final wishes.

In these circumstances, the charity may be able to make an ex gratia payment from its share of the estate to honour those wishes. The trustees must carefully consider the evidence, including any draft Wills, correspondence or other evidence of the deceased’s intentions. Disappointment on the part of relatives, without more evidence, will not normally establish a moral obligation.

Another example can occur when a donor asks for a donation that they made to the charity to be returned. A supporter might make a substantial donation and later suffer a serious and unexpected downturn in their finances (for example the loss of a business, or a sudden change in family circumstances) leaving them in genuine hardship. The charity is under no legal obligation to return the money, but the trustees may consider that, having given generously when they were able, the donor could reasonably be regarded as morally entitled to have at least part of the gift returned. As with legacies, the trustees must look closely at the evidence before acting. A simple change of heart, or regret at having made the donation, will not establish a moral obligation.

What should trustees consider?

The reforms provide greater flexibility, but trustees must still approach each case carefully. They should establish that the proposed payment is genuinely ex gratia, consider whether their governing document or other legislation restricts the available powers, and determine whether Charity Commission approval is required.

Trustees should also document their reasoning, the evidence considered and the basis for their decision. Where approval is required, it must be obtained before the payment is made.

Ultimately, the changes should enable charities to deal with cases more efficiently while maintaining the principle that charitable assets must be applied responsibly. Trustees faced with a potential ex gratia payment should ensure that they understand the relevant laws and seek specialist advice where necessary. Contact Kamran Chughtai on 020 8461 6117 or by email on Kamran.Chughtai@thackraywilliams.com for a consultation.