What do we need to check before we merge?

England and Wales: This page covers the Commission’s lists, TUPE, the pension exit debt and the legacy test; how the receiving charity accounts for the merger is not covered here. Scotland: the same pension and employment law, but OSCR’s checklist sits on a different page and the legacy test is different — see below. Northern Ireland: the same employment law in substance, Northern Ireland’s own pensions legislation not checked, and CCNI points to the England and Wales checklist and the legacy test is the old, unreformed one — see below.

Does the Commission publish a due diligence checklist?

No. The Charity Commission for England and Wales’s current merger guidance does not include one. But a search for charity merger due diligence turns up long checklists labelled “what the Commission requires”.

This page assumes each board has already decided, in principle, that a merger is worth checking — see assess whether a merger is the right answer. Due diligence is the checking each charity does before its trustees decide whether to merge. The Commission’s guide “How to merge charities” gives three shorter things:

• a list of what due diligence “can help you explore” — strengths and weaknesses, incompatibility, finances, reputation, culture, values, activities and policies
• a list of circumstances calling for a more rigorous exercise
• a checklist for the whole merger, in which due diligence is one line

Present them as what they are. For a small charity, the Commission’s headline is proportion. It says, verbatim: “How rigorous the exercise is will depend on the circumstances of the charities merging”. It adds: “The trustees of each charity should decide what level of due diligence they need.”

But read the triggers for more rigour. Several are things small charities do have:

• employees or pension liabilities, “and whether a merger would trigger pension liabilities”
• complex service delivery, or contracts
• significant loans or borrowings
• permanent endowment, designated land or special trusts

Pensions: the questions, in this order

A pension exit debt can be the largest liability in a merger, and the easiest to miss. The Commission gives pensions seven words: “merging may trigger pension liabilities”. Take the questions in this order. If your only scheme is money purchase, the first one ends the enquiry.

1. Which kind of scheme are you in?

In Great Britain, the Pensions Act 1995 s.75 applies to occupational pension schemes “other than a scheme which is— (a) a money purchase scheme”. Check the scheme type, not its name.

NEST and most auto-enrolment master trusts are money purchase. So they are outside section 75 in Great Britain entirely. There is no exit debt, no trigger and no easement to negotiate, however many staff leave.

If that is your only scheme, the rest of this section does not apply to you. (The auto-enrolment duty itself is covered in set up the workplace pension.) The risk belongs to defined benefit schemes.

2. If it is defined benefit, the accounts figure is not the exit figure

The exit debt is not the deficit in your accounts. The Occupational Pension Schemes (Employer Debt) Regulations 2005 apply in Great Britain. Under them, the debt is worked out on a buy-out basis. That means the cost of buying annuities for every member from an insurer. The Commission’s own guidance describes it the same way.

In a multi-employer scheme there is a second layer. Each employer also takes a share of the “orphan” liabilities left by employers who have gone. The Pensions Regulator says these can be “a very significant part” of the whole.

So a charity can look well funded in its accounts and still face an exit debt far larger than the accounts show. The two numbers measure different things.

3. The trigger is invisible

The debt does not wait for the merger. Under regulation 6ZA of the same Great Britain Regulations, the debt is triggered by an employment-cessation event. That is when the employer stops employing any active member of the scheme while another employer still does.

That can be an ordinary retirement. The last member of staff in the scheme retires, and the debt falls due. A TUPE transfer of your last active member does the same. It ends your active membership. The merger is not the trigger. What the merger does to your staff is.

4. The ways out are conditional, and mostly need agreeing in advance

The Great Britain Employer Debt Regulations offer several ways to avoid or reduce the debt. They include a period of grace, a deferred debt arrangement, restructuring tests and apportionment arrangements. They share three features:

• most need the scheme trustees’ agreement in advance, and one needs the Pensions Regulator’s
• the period of grace has a hard notice window, up to 3 months after the cessation date — miss it and the option is gone
• a deferred debt arrangement ends if the scheme starts winding up (regulation 6F)

So take actuarial and legal advice before the last active member leaves, not after the debt notice arrives.

5. Local Government Pension Scheme admitted bodies

Some charities in England and Wales are in the LGPS because staff moved in from a council. The charity was admitted to the fund as an admission body. Under regulation 64 of the LGPS Regulations 2013, the trigger is ceasing to have any active members, or the admission agreement ending. The result is a cessation valuation and exit payment.

The fund’s own Funding Strategy Statement sets the basis for that valuation. That is fund policy, not regulation. Since 23 September 2020 there have been two flexibilities: a deferred debt agreement and spreading the payment. They apply only where your fund has adopted a policy for them. Check your fund’s current statement.

Scotland’s local government scheme has its own regulations. Northern Ireland has NILGOSC instead. Neither was covered for this page. Do not apply the England and Wales rules to them.

6. The fifth route to personal liability

This hub counts five ways a trustee can end up personally liable; understand what you are personally liable for sets them out. This one is the least visible. It arrives through a pension scheme, not a decision.

An unincorporated charity is not a legal person. The Commission’s guidance for England and Wales follows from that. It says a section 75 debt “will fall… on the charity trustees as the employers at the time of the shortfall”. Trustees are normally entitled to an indemnity from the charity’s assets. But if the assets do not cover it, the Commission says any limitation “that sought to limit their liability to the assets of the charity would be ineffective”.

That guidance is dated. It pre-dates the deferred debt arrangement and the LGPS flexibilities. The guidance is sound on the liability. It is not a current list of the options.

What nobody publishes

No regulator or sector body publishes how many charities face a defined benefit exit debt. No named charity was found to have been hit. That is a gap in the evidence, not a sign the risk is small.

A change is on the statute book but not in force. The Pension Schemes Act 2026 adds provisions to section 75 of the Great Britain Act. They cover a new kind of consolidation vehicle, the “superfund”. They matter only if a scheme moves into an authorised superfund. No start date has been appointed.

Staff, contracts and TUPE

TUPE applies to charities. The Regulations say so in terms. Regulation 3(4)(a) of TUPE 2006 covers undertakings engaged in economic activities “whether or not they are operating for gain”. A relevant transfer can happen “whether or not any property is transferred”.

The gateway is that the work carries on. A charity that closes, with nobody carrying on its work, is not a TUPE transfer. A charity whose activities and staff move to another charity is. What about our employees and all our files? covers the process.

TUPE 2006 reaches Northern Ireland directly for this kind of transfer (regulation 1(3)). Only the narrower “service provision change” limb runs under separate Northern Ireland regulations. An older note in this guide’s research was more cautious than it needed to be. This page corrects it.

Endowment, restricted funds and the legacy pipeline

Permanent endowment, designated land and special trusts are on the Commission’s list of rigour triggers for a reason. They have their own transfer rules and do not move with the general assets. Restricted funds keep their restrictions when they move. Record your first restricted grant correctly covers how they are kept.

Legacies belong in the report too. The Commission’s checklist line, verbatim: “Check if the merger will be required to be registered. If not, check if you want to register it.” Registering is what lets a future gift to the closed charity reach the one that survives. For a charity with any legacy pipeline, skipping it is a real risk.

The legacy test now differs in all three nations

Each of the three nations now has its own statutory test. The test decides whether a legacy to a merged charity reaches the charity that survives.

The case that exposed the problem is Berry v IBS-STL (UK) Ltd [2012] EWHC 666 (Ch). A registered merger still lost a legacy. The will’s own wording defeated the old statutory test. How do we actually do the merger, and do we have to register it? tells that story.

England and Wales rewrote the test from 7 March 2024. The provision is Charities Act 2011 s.311(2). It now reads, verbatim:

“Subsection (2A) applies to a gift, other than an excluded gift, if— (a) the gift would have taken effect as a gift to the transferor if the transferor had been in existence, and (b) the date on which the gift would have taken effect is a date on or after the date of the registration of the merger.”

Scotland brought in its own test from 30 June 2025. It is in section 64D(2) of the Charities and Trustee Investment (Scotland) Act 2005, which reads, verbatim:

“The legacy is to be treated as having vested in the transferee under the merger unless it is clear from the terms of the will that the testator intended otherwise.”

Section 64D(3)(b) goes further. It says the “to the charity, which failing to another person” drafting that sank Berry is not, by itself, a clear contrary intention.

Northern Ireland has not changed its test. The Charities Act (Northern Ireland) 2008 s.164(2) still reads, verbatim:

“Any gift which— (a) is expressed as a gift to the transferor, and (b) takes effect on or after the date of registration of the merger, takes effect as a gift to the transferee, unless it is an excluded gift.”

That is word for word the old English test that failed in Berry.

What follows from the three texts is analysis, not settled law. This guide’s research reads Scotland’s test as the strongest of the three. It also reads a Northern Irish merger that relies on s.164 today as carrying the risk Berry showed.

No court or regulator has said either. Whether a gift in a particular will reaches the surviving charity is a question for a solicitor.

Scotland and Northern Ireland: where the checklists live

Scotland. OSCR’s “Amalgamation” page covers the consent application and nothing else. The checking content is in “A guide to incorporation”. That is because a change of legal form counts as a charity merger under Chapter 7A of the Scottish 2005 Act.

The incorporation guide names TUPE: “you should consider your legal responsibilities under The Transfer of Undertakings (Protection of Employment) Regulations 2006”. It warns that dissolution “may mean that a large cessation debt… becomes immediately payable”. It also covers legacies, leases, claw-back, endowments and pending claims.

Northern Ireland. CCNI’s guidance EG035, “Mergers and closures”, is one substantive document. It names pension liabilities and restricted funds. It never uses the word “TUPE” — it refers to “employment law” instead.

CCNI does not publish its own checklist. EG035’s glossary says, verbatim: “The Charity Commission for England and Wales provides a checklist for due diligence which may be useful to charity trustees.” No such checklist appears in the Commission’s current merger guidance.

EG035 dates from August 2021 and is still the version CCNI links to. Check anything time-sensitive with CCNI directly before you rely on it.

Northern Ireland has its own pensions legislation, and it was not checked for this page. Ask the scheme which laws govern its exit debt.

With the report in hand, each board takes its own decision. If both go ahead, the next step is to execute the merger and register it.

Common mistake: presenting a long due-diligence checklist as “what the Commission requires”

Sector content has copied and padded a list the Commission never published. The Commission publishes three things:

• a short list of what due diligence can help you explore
• a list of circumstances calling for more rigour
• a whole-merger checklist in which due diligence is one line Present the three as what they are. The rigour triggers include things small charities do have: employees or pension liabilities, contracts, borrowings, endowment.

Common mistake: reading the pension deficit in the accounts as the exit exposure

The accounts figure is the number trustees see every year. For a defined benefit multi-employer scheme, the exit debt is worked out on a buy-out basis. It adds a share of orphan liabilities. A charity can look well funded and still face an exit debt far larger than the accounts show.

But first ask which kind of scheme it is. A money purchase scheme, like NEST, is outside the Great Britain section 75 regime altogether.

Common mistake: assuming the merger itself is what triggers a pension debt

The transaction is the visible event, so it gets the attention. But the trigger is the employer ceasing to employ any active member while another employer still does. It can be an ordinary retirement. A TUPE transfer of your last active member also ends your active membership.

The easements mostly need agreement in advance. The period of grace has a hard notice window. A deferred debt arrangement ends if the scheme starts winding up. Take actuarial and legal advice before the trigger.

Common mistake: unincorporated trustees assuming a limitation clause caps their pension exposure

The clause is there, and it reads as if it works. But an unincorporated charity is not a legal person. So in Great Britain a section 75 debt falls on the trustees as the employers at the time of the shortfall.

The trustees are normally entitled to an indemnity from the charity’s assets. But if the assets do not cover it, the Commission says a limitation to the charity’s assets “would be ineffective”. Its source is dated: sound on liability, not on options.

Worked example

Saltmarsh Trust is to receive all the assets of a smaller unincorporated charity. Years ago, the smaller charity’s staff transferred to it from the local council.

Several rigour triggers are met: employees, pension liabilities and contracts. So the first question is which scheme. The trustees check and find the charity is an LGPS admission body.

That points to a cessation valuation on the basis in the fund’s own Funding Strategy Statement. That is fund policy, not regulation. A deferred debt agreement or spreading is possible only if that fund has adopted a policy. Moving the last active member to Saltmarsh ends active membership. That is the trigger.

For the smaller charity’s trustees, the exit payment is a personal exposure if the charity’s assets do not cover it. So they get the figure from actuarial advice before any transfer date is set.

The report covers TUPE for the transferring staff too. It answers one checklist line: whether the merger has to be registered and, if not, whether they want to register it.

The outcome is a due diligence report, not a padded checklist. It holds the exit figure from actuarial advice before the transfer date, the TUPE position and a decision on registration.