Can we use the restricted grant money to pay for closing down?

England and Wales: This page sets out the position in full. Scotland: covered — a different mechanism, an application to OSCR to reorganise the fund, but the same answer: it cannot be used to release a fund for general closure costs. Northern Ireland: partly covered — the cy-près occasions and a power to spend permanent endowment are established; how they apply when a charity closes is not.

Using restricted funds for closure costs

Paying a closing charity’s final rent, accountant and redundancy costs from an unspent restricted grant is generally unlawful, however sensible it feels. It is the obvious plan when the charity is closing and the grant is still in the bank. This page assumes the board has already decided to close. How a restricted grant is recorded in the first place is in record your first restricted grant.

A restricted fund is money given for a particular purpose. The charity holds it on trust for that purpose, and closing down is not that purpose. The kinds of fund are explained in restricted, designated and endowment funds. The charity’s general overhead is not a cost of the funded project, even when the project is ending too.

Spending restricted money on the wrong thing is a breach of trust. That is the most expensive mistake a trustee can make on the way out. The section on breach of trust covers it in full.

The narrow exception, in the Commission’s words

Some closure costs can come out of a restricted fund: those incurred in connection with that fund. The Charity Commission’s guidance CC12 applies in England and Wales. It sets out what restricted-type funds can pay for. CC12 calls money that must be used for purposes narrower than the charity’s a “special trust”. It says that permanent endowment, designated land and special trust funds, verbatim:

can be used to pay for any expenses properly incurred by the charity in connection with these funds.

The test is whether the cost belongs to that fund. In practice:

• Can usually be charged to the fund: the cost of returning the money to the funder. So, usually, is the cost of moving that specific funded activity to a successor charity.
• Cannot be charged to the fund: the charity’s general closure costs. These include the rent, the final accounts, the general staff costs and the solicitor for the closure itself.

On paying general debts from these funds, CC12 is blunt: “you need to be very careful about this and take specialist charity law advice”. Changing a restriction needs a legal power or the Commission’s authority, which, in CC12’s words, “we may not always give”. If general debts are in play, you should take that advice before any money moves.

If the charity is insolvent, the restriction still binds

Insolvency looks like the point where charity-law restrictions stop mattering. But the prevailing professional view is that the restrictions keep binding.

When a liquidator or administrator is appointed, the office holder steps into the trustees’ shoes. The office holder is bound by the same obligations. Assets held on trust for a specific charitable purpose are not part of the general estate that creditors can reach.

That is the prevailing view, not a statute. Nothing in the Insolvency Act 1986 or the Charities Act 2011, as they apply in England and Wales, says it in terms. It rests on a general principle of trust law and on specialist practitioner commentary. No court decision was read directly for this page.

Most advisers would still start from this view. That is why the restricted fund should not be treated as money for the creditors.

The lawful ways to release a restriction

If a restriction has to change, England and Wales has four routes. None is guaranteed. None is quick.

1. Donor consent. Ask the funder. Many funders will agree a change, or ask for the money back. Handle an underspend, overspend or change of plan covers that conversation.
2. A cy-près scheme. Charities Act 2011 s.62 applies in England and Wales. It sets the occasions when a gift’s original purposes can be altered. For example, where they cannot be carried out, or have been fulfilled as far as they can be. It sits in Part 6 of the Act, not Part 13.
3. A statutory power for the trustees. The research lists “a small-charity power”. Check which one you are relying on. The Charities Act 2011’s old unincorporated-charity powers, ss.267 to 280, were repealed on 7 March 2024 in England and Wales. A precedent that cites s.268 or s.275 is out of date. The routes that replaced them are set out where you check which amendment route your charity uses.
4. The Commission’s authority. CC12 notes “we may not always give” it.

Permanent endowment: two powers, and neither is “consent”

Permanent endowment is capital the charity may not spend. The Charities Act 2011 (England and Wales) now defines it as property subject to a restriction on being spent that distinguishes between income and capital. The Act gives two ways to free it:

	Smaller funds (s.281)	Larger funds (s.282)
When it applies	Any available endowment fund not caught by s.282	Where the fund’s market value exceeds £25,000
What the trustees do	Pass a resolution that the fund ought to be freed	Pass a resolution and send it, with reasons, to the Commission
Commission step	None at all	Notify, then wait. If the Commission concurs, or its relevant period ends without objection, the release takes effect
Who can use it	Any charity, including CIOs and charitable companies	Any charity with a fund that size

Either power frees the capital only for the fund’s own purposes. Once released, the fund may be spent “in carrying out the purposes set out in the trusts to which the fund is subject” (s.281(5), s.284(5)). Neither turns endowment into money for general closure costs.

Two points most content has not caught up with. First, the larger-fund route is notify-and-wait, not consent. Silence is enough. Second, the smaller-fund power no longer excludes incorporated charities. The Charities Act 2022 removed that restriction in England and Wales. So s.281 now reaches CIOs and charitable companies too.

The s.281 test is that the trustees are satisfied the purposes of the fund’s trusts could be carried out more effectively if its capital could be spent as well as its income. The length of the Commission’s relevant period under s.284 is set in the statute. It is not separately citable here.

If the trustees get it wrong: breach of trust, and the relief routes

What the exposure is. Misapplying a restricted fund is a breach of trust. A breach of trust exposes the trustees personally, whether or not the charity is incorporated.

Where that comes from. No statute says it in those words. It is a general trust-law proposition, and it is correct. CC12 is consistent with it. Charities Act 2011 s.62 (England and Wales) is sometimes cited for it, but s.62 says nothing about trustee liability. s.62 is cited for the cy-près route only.

The relief routes. A trustee in breach is not left without a defence. Three routes exist:

Route	Who decides	The test
Charities Act 2011 s.191 (England and Wales)	The Commission	The trustee “has acted honestly and reasonably and ought fairly to be excused for the breach of trust or duty”. Relief may cover all of the loss or only some of it. It covers “a charity trustee or trustee for a charity”, so incorporated and unincorporated charities alike.
Trustee Act 1925 s.61 (England and Wales)	The court	Court relief for trustees, preserved by s.191(6) of the Charities Act 2011.
Companies Act 2006 s.1157 (UK-wide)	The court	Court relief for company officers, also preserved by s.191(6).

And the hole in the middle of it. Charities Act 2011 s.191(4) applies in England and Wales. It says the Commission’s relief does not apply to “any personal contractual liability” of a charity trustee.

That matters most to an unincorporated charity. Its trustees sign the lease, the employment contracts and the supplier contracts. Their exposure on those is contractual. So for them, the Commission’s relief route is largely closed for the debts most likely to arrive at closure.

The trustee-liability picture for every structure belongs to If the charity can’t pay, can they come after me?.

Scotland and Northern Ireland

Scotland: a different mechanism, the same answer. Scotland does not use the England and Wales cy-près scheme for this.

Instead, Chapter 5A of the Charities and Trustee Investment (Scotland) Act 2005 (ss.43A to 43D) lets a charity apply to OSCR to reorganise a restricted fund. The aim is to change the fund’s purposes or its conditions of use. OSCR can approve a scheme only if three things are true:

• One of the conditions in s.43A(2) of the Scottish Act is met. For example, the fund’s purposes have been fulfilled as far as possible, or can no longer be given effect to.
• The reorganisation will let the fund be applied to better effect for charitable purposes, consistently with the charity’s constitution.
• The charity is unable to find out the donor’s wishes.

OSCR’s own guidance says the route cannot do what a closing charity most wants. Verbatim:

The legislation does not permit applications to directly transfer or wind up restricted funds. The result of a reorganisation scheme will always be that the funds continue to exist but with amended conditions of use and/or purposes.

So a reorganisation changes what a fund can be used for. It does not release it for general closure costs. Publicity and process requirements depend on the fund’s size and the charity’s income. They mirror OSCR’s general reorganisation regime. OSCR’s guidance document appears to date from 2012 and shows no revision date. No newer version was found.

Northern Ireland: partly covered. The Charities Act (Northern Ireland) 2008 cy-près occasions (ss.26 to 30) are in force. So are powers in ss.128 to 130 of that Act to spend permanent endowment. They are for a charity that is not a company (s.129 for larger funds given for a particular purpose).

Section 123 is a different power: it transfers all of a small unincorporated charity’s property.

How these apply when a Northern Ireland charity closes has not been established. In Northern Ireland, CCNI can relieve a trustee (Charities Act (Northern Ireland) 2008 s.91), again not from contractual liability. Do not read the England and Wales position across. Ask CCNI or a solicitor.

With the liabilities settled and each restricted fund dealt with, the next step is to transfer or distribute the remaining assets.

Common mistake: using the restricted grant to cover wind-down costs

It feels reasonable, and it is the most likely expensive mistake in this whole hub.

CC12 says restricted-type funds “can be used to pay for any expenses properly incurred by the charity in connection with these funds”. So the cost of returning that money, or of moving that funded activity to a successor, may be payable from it. The charity’s general overhead is not. On general debts, CC12 says “you need to be very careful about this and take specialist charity law advice”.

Misapplying a restricted fund is a breach of trust. It exposes the trustees personally, incorporated or not.

Common mistake: assuming a liquidator can sweep restricted assets into the general estate

Insolvency looks like the moment charity-law restrictions stop mattering. The prevailing professional view is that the office holder steps into the trustees’ shoes and remains bound. So assets held on trust for a specific purpose are not available to creditors. That is a view, not a statute: it rests on trust-law principle and practitioner commentary.

Common mistake: calling the larger-fund permanent endowment release “Commission consent”

Every other regulated step in this hub is a consent, so this one gets called one too. It is notify-and-wait. The trustees send the resolution and reasons. If the Commission’s relevant period ends without objection, the release takes effect. The smaller-fund power needs no Commission step at all, and it now reaches CIOs and charitable companies.

Worked example

Tollgate Youth CIO is closing. It holds an unspent restricted grant for a summer programme.

The treasurer draws up one row per fund. The row for the summer programme grant says what the grant can bear. That is the cost of returning it to the funder, or of handing the programme to another youth charity that will run it. It cannot bear Tollgate’s general closing costs: the final accounts, the last month’s rent, the trustees’ own legal advice on the closure.

The trustees ask the funder first. Suppose the funder agrees that the programme and its money can move to a neighbouring charity. That is donor consent, the simplest of the four release routes. If the funder cannot be reached, the next step is a cy-près scheme through the Commission.

If Tollgate held any permanent endowment, that fund would go through one of the two release powers, s.281 or s.282, depending on its size.

General debts are in play, so the trustees take specialist charity law advice before any restricted money moves, as CC12 says.

The outcome: a written analysis of every fund, its restriction and the lawful route chosen.