Clients often ask how they can make charitable donations and philanthropy a part of their financial plan, and what the best ways to do this would be. Recent events like the war in Ukraine and the cost-of-living crisis can strengthen our conviction to donate to those in need, both on a global and local scale. As advisers, we are fully committed to helping clients find the right charities and ways to donate to causes they are passionate about.
There are many ways to incorporate charitable giving into your financial and estate planning, with various schemes available to help you maximise the value of your charitable donations tax efficiently to help as much as you can.
Set your intentions
Before you begin the philanthropic process, a good place to start would be to set your intentions and that means choosing a cause to donate to. Once you’ve figured out what cause you’d like to give to, you can speak to your adviser about which charities or non-profit organisations could benefit the most from your support. Another key thing to think about is setting a budget and figuring out how much you would like to donate and how frequently. From here, you can then evaluate your giving style – and we break down some examples.
Gift aid
Donating through gift aid means that charities can claim back basic rate tax on donations, meaning for every £1 you give the charity gets £1.25, and you need to be a UK taxpayer to use this scheme. Higher rate and additional rate payers can also reclaim the tax they have paid on this donation through self-assessment. This can effectively lower the net income on which their tax is calculated, which can be beneficial for those earning just over £60,000 (as of 6th April 2024) who will pay the High Income Child Benefit Charge.
As well as national charities like Disasters Emergency Committee, Cancer Research or Trussell Trust, you can also use gift aid to make donations to arts and culture institutions. If you make a voluntary donation (of at least 10%) on top of the standard ticket price to many museums and art galleries, then the total value of your purchase can benefit from gift aid. You can also use gift aid when buying an annual membership to these organisations.
Give as you earn
Some companies allow employees to make regular donations to charity direct from their gross salary exempting these donations from tax, although they are subject to national insurance contributions. Speak to your HR and Finance departments to see if your employer for can offer this type of donation, and if they don’t perhaps suggest this at your next company meeting.
Share gifting
Shares donated to charity are not subject to capital gains tax (CGT). The value will also be deducted from your taxable income, potentially reducing income tax. If a charity can’t accept shares directly you can sell them on their behalf, again avoiding CGT, although you will need an instruction from the charity.
Community foundations
Many people want to incorporate philanthropy in their financial plan but in some instances we have seen clients concerned with the amount spent by larger charities on non-charitable activities. An alternative to this is to help find local and smaller community foundations which align with your values. Take a look at UK Community Foundations to find the right charity for you.
Giving to a community foundation is a great way to help local, smaller charities. The community foundation will set up a named fund depending on the size of gift and will work out with the donor how involved they would like to be in making decisions about individual grants. Named funds can either be distributed over a set period in what is called a ‘flow-through fund’ or can be invested in an ‘endowment fund’ where the money remains, and the income from the investment is used each year to distribute as grants.
Once the fund is active, the community foundation will join it up with appropriate requests for support from local charities and community groups that fit your philanthropic wishes. In some cases, there is the option of connecting with like-minded people in supporting a local fund for a specific geographic area or a themed fund, benefitting a particular issue or cause.
Charitable legacies
There have been many instances where clients express wishes to leave charitable legacies in their wills and we have helped many to do so. It’s important to know that if you leave a legacy to a qualifying charity in your will, it won’t be included in your estate when calculating inheritance tax (IHT). It’s also useful to know that the inclusion of the charitable legacy can, depending on the value of the person’s estate, potentially lead to the non-charitable beneficiaries (such as the person’s children) receiving more than they would otherwise receive if the entire estate was left to them without the inclusion of the charitable legacy. This is because if you bequeath at least 10% of your net estate to charity, any IHT due is charged at 36% rather than 40%. Do be aware that the 10% of the net estate is actually 10% of the person’s estate after deduction of the available nil rate band allowances, so the donation required to secure the reduced rate of tax is usually smaller than people think. It’s best to speak to a legal adviser to help you arrange a charitable donation or legacy in your will.
Speak to a professional
There are many ways you can incorporate charitable giving into your financial plan, and a wide scope to define what that looks like for you depending on your philanthropic intentions. Spend time considering what cause matters to you – whether that’s social issues, human rights, education, environmental conservation, health care, the arts or animal rights. The best way to ensure your gifting is set up appropriately is to speak to a financial adviser who can put these structures in place for you.
If you would like to speak to our team about philanthropy, please get in contact today.
