The key considerations when closing a charity

While it may be a difficult decision to make, our charity and real estate expert outlines some important factors to consider when closing a charity.

Closing a charity is rarely an easy decision. Similarly, when you decide to join a charity as a trustee, the last thing you are probably considering is the possibility of your charity winding up. Unfortunately, however, charity closures are not unusual. In 2024 alone, the Charity Commission reported that over 4,000 charities were removed from the register of charities.

There are a number of reasons why a charity might close, from trustees deciding that their work is done as their charity has fulfilled its original purpose, to loss of funding or service contracts, lack of members or mergers/amalgamations with other charities. There is also the possibility that a charity could close due to a change in legal status to become a charitable company or charitable incorporated organisation (CIO).

What should trustees consider when closing a charity?

When deciding whether to close a charity registered in England and Wales, it is important that trustees know what their legal responsibilities are and how to effectively manage the charity closure process as certain procedures must be followed to comply with the law.

These include requirements in relation to spending, dealing with any remaining funds and dealing with any land, endowments or trusts owned by the charity.

What are the requirements in relation to spending or dealing with any remaining funds when closing a charity?

Charity law in England and Wales requires that any remaining money must continue to be used exclusively for charitable purposes, and strict rules apply to how they are spent or transferred. This means that you cannot distribute surplus funds to trustees, members or staff, and funds must either be spent on completing outstanding charitable work or, in most cases, transferred to another registered charity with similar purposes. This ensures that the public benefit for which the funds were originally raised is preserved.

The first step is to review the charity’s governing document which should include a dissolution clause setting out how the charity can be closed (ie. who needs to approve the decision) and what should happen to any remaining assets.

Before distributing any remaining funds, the charity must pay all outstanding debts, finalise contractual obligations and ensure there are no unresolved claims or legal proceedings.

What are the requirements when dealing with any land, endowments or trusts owned by the charity?

Trustees must ensure that all assets are dealt with in line with charity law.

Special rules apply in relation to designated land which is held for a specific charitable purpose, such as recreation, education or religious use. When a charity holding designated land is closed, it cannot simply be sold or transferred for general use and must continue to be used for the original purpose or be transferred to another charity that will do so. If that’s not possible, trustees may need to apply to the Charity Commission to change the use.

Similarly, permanent endowment (assets that must be preserved rather than spent) cannot be spent on general wind-up costs or redistributed. They must be transferred to another charity with similar purposes or kept intact with ongoing arrangements for their use in line with donor intent. In some cases, trustees can apply to release the endowment restrictions, but Charity Commission approval is usually required.

Restricted funds (donated for a specific purpose) must be used for the intended purpose only so, if that purpose can no longer be fulfilled, trustees must transfer the funds to another charity with similar purposes or apply to the Charity Commission for permission to change the restriction. Misuse or misapplication of such assets can lead to regulatory action and/or personal liability.

Is there anything else to consider?

As well as the processes outlined above, it is also worth bearing in mind that the requirements may vary according to the legal structure of the charity.

For example, a charitable company must also follow Companies House rules, including submitting final company accounts, and CIOs must apply to the Charity Commission to dissolve, including submitting a declaration that all assets have been properly dealt with.

Once the trustees are satisfied that the requirements for closure have been met, they can proceed to apply to close the charity and remove it from the Charity Commission register.

Who should trustees approach for guidance on charity law and closing a charity?

The Charity Commission is always the first point of contact for guidance on closing a charity. However, should you need any advice regarding your charity’s closure, our team of charity law specialists would be happy to assist you.

Please get in touch for an initial consultation about your situation.

Our charities and not-for-profits team specialises in advising charity and not-for-profit clients on commercial property matters. The team also assists with other charity law matters, such as helping charities to comply with regulations.