Jennifer Scott and Sophie Bird, in our Charities & Education team, break down the rules behind 'ex gratia' payments.
The general rule is that charities can only spend money on furthering their charitable purposes in the ways set out in their governing documents.
However, when it comes to certain moral or ‘ex gratia’ payments, different rules apply. Charities generally have more freedom to spend their money.
Recent changes in charity law have affected these rules for ‘ex gratia’ payments, requiring trustees to refresh their knowledge of them.
What are ‘ex gratia’ payments, and when can they be made?
Although not strictly defined in law, ‘ex gratia’ payments are generally considered to be payments made by trustees under a moral obligation, but where:
- trustees are under no legal obligation to make payment;
- the charity’s governing documents provide no power to make payment;
- there are no other legal powers available to make payment; and
- the trustees cannot justify payment as being in the charity’s best interest.
‘Ex gratia’ payments can be made where trustees:
- make sure that the person making the decision has authority to do so;
- are satisfied that the trustees could reasonably be regarded as having a moral obligation to make the payment; and
- obtain Charity Commission authority where it is needed.
‘Ex gratia’ payments commonly occur in connection with gifts left to charities through a will. For example, where a charity receives a legacy that is larger than the testator intended, thereby reducing another beneficiaries share, the charity may decide to make an ‘ex gratia’ payment to that beneficiary on moral grounds.
What has changed?
Changes introduced by the Charities Act 2022 (the Act), which came into force on 27 November 2025, affect how charities make ‘ex gratia’ payments.
The changes enable:
- trustees to delegate decision-making authority for ‘ex gratia’ payments to other people at the charity (for example, to a member of staff or a trustee sub-committee); and
- charities to make certain ‘ex gratia’ payments without Charity Commission authority (or self-authorise).
These changes (reflected above) should result in a more streamlined process for charities making ‘ex gratia’ payments.
What does this mean in practice?
When ‘ex gratia’ payments arise, establishing whether or not a charity can make an ‘ex gratia’ payment can be a complex, and so where unsure, charities should seek professional legal advice.
For further information or legal advice on ‘ex gratia’ payments, or another area of charity law, please email law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
