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Is Charitable Giving a Part of Your Financial Strategy?

Charitable giving in the UK has never been more popular. As well as being good for the soul, it can also be a smart financial strategy.

After a tumultuous couple of years for global politics, it seems there’s more unrest and uncertainty around the world than ever. But encouragingly, some initial concerns look to be diminishing. Take the fact that Brits’ generosity has never been greater – with £10.3 billion donated to good causes in 2017 alone (source: Charities Aid Foundation).

Charities look set to become even more important to society in the years ahead. As demographic change hits public finances and governments are forced to prioritise spending, charities large and small may well soon have to fill the gap. David Cameron’s coalition government talked in 2010 about “Big Society” – a phrase that may feel like it’s from a bygone and distinctly calmer political age, but in fact is now more relevant than ever.

We all know the amazing work that charities do on a local and global level, but what many people perhaps don’t realise is that the UK tax system provides a favourable regime to help the charitable sector. Subject to certain circumstances being met, UK charities and some sports groups can add 25 per cent to any donation through tax relief via the Gift Aid scheme. The scheme also applies to EU charities, but as with many things surrounding our relationship with Europe, uncertainty remains over its future when Brexit takes place next year.

Give and relieve
While donating can be good for the soul, there is further good news for donors as the UK provides tax relief for donations to qualifying charities; with more than £1.5 billion worth of tax relief claimed by donors throughout 2017. Additionally, over half of that was claimed by individual donors with an income in excess of £250,000 (source: The FT).

Most assets are given as cash, but donations can be made in just about whatever form one chooses: shares, buildings, cars – indeed, whatever assets an individual owns.

For example, it’s becoming more common for property owners to donate a short-term leasehold – for, say, 20 years. This can be more useful for the charity, who might value bricks and mortar over pennies, but the donor can also benefit as they avoid crystalizing a potential capital gains tax liability if they were to sell the building to fund the donation. The donor also retains ownership of the freehold and has the freedom to pass this down to their family as they wish, who may in turn decide to continue donating short term leaseholds of the property to the charity.

It’s at the sad time of death that many choose to donate to causes close to their heart through their will. Some 40,000 of those who died in 2015 did just that, according to legacy solution firm Smee & Ford. Not only does such a donation ensure charities can continue to deliver help and support, but leaving a charitable legacy of 10 per cent or more of your net estate to good causes can also reduce the rate of inheritance tax payable from 40 per cent to 36 per cent.

You might also be interested in:
Inheritance Tax – Gifts and Exemptions Explained
Year-end tax planning: A 10-point checklist

Good foundations
Firms and high-net-worth individuals alike may also consider setting up charitable foundations as their “good work” delivery vehicle. These are legal entities, governed by certain regulations, but as long as the criteria are met, they are in fact relatively straightforward to launch. They can be set up through cash or assets, and once you’ve allocated the beneficiaries of the charity, you can apply for Gift Aid status as well, thus completing the virtuous circle.

Typically, any donations a charity receives isn’t subject to tax and can be invested. Charitable trusts and foundations will often do just that, putting some of their assets in a well-performing portfolio that allows the running costs of the charity to be met more easily and ensuring donations from other sources go where they’re needed the most.

Running a foundation should be treated the same as running a business – and there’s plenty of work to do to ensure its success. In recent years, we’ve seen charities that aren’t governed properly and don’t have rigorous checks and balances in place can go to the wall. It’s very important to get the right professional and financial advice before embarking on this particular journey.

Recent high-profile scandals have left many organisations concerned for the sector’s reputation and donations have dropped off as a result. This shouldn’t deter people and businesses to consider the sector as a way to boost their financial strategy as well as enrich the soul (Source: The Guardian). Whichever way you choose to give, charities will be thankful for it. To borrow a phrase from the high street, every little helps…

This article is for general information purposes only and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. It is advisable to contact a professional advisor if you need further advice or assistance as the tax implications can vary depending on an individual’s personal circumstances and may be subject to change in the future.