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The art of giving

The art of giving

Supporting charities with your wealth can be more complex than you might think. It also comes with tax implications – for your cause, and for yourself.

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Jo Bateson

Partner

KPMG in the UK

Contact

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Wealth brings the opportunity to make a difference to society. Indeed, many clients ask our advice on how to make their philanthropic spending as effective as possible, and how to maximise its impact.

There are a number of ways to put money into a cause you believe in. You could make one-off or regular donations. Or you might establish your own foundation, to run a project or manage grant-making activities.

We’re also seeing growing numbers of clients launch initiatives like social impact investment vehicles, social enterprises and ‘B’ corporations – alongside or instead of ‘conventional’ philanthropic activities.

Whatever your approach, it’s important to maximise the impact your money can achieve for your chosen cause; and to enable it to benefit from the tax reliefs available. You’ll also want to ensure that your generosity doesn’t throw up any personal tax liabilities.

Considering the options

To help you make the right decisions on philanthropic spending, our experts will take you through some fundamental questions:

  • What do you believe the purpose of your wealth to be?
  • How much of your wealth do you wish to allocate to philanthropy?
  • Do you wish to make a one-off or ongoing contribution? 
  • How involved do you want to be with your cause(s)? 
  • Do you want to align your cause with your business, brand, career and/or areas of expertise?

We’ll also go into the different ways you can put money into your cause. Broadly speaking, there are three main approaches:

  1. Giving a one-off donation to an existing charity
  2. Establishing a foundation to contribute on an ongoing basis 
  3. Using a donor-advised fund (DAF), usually to support several causes at once

Forming a foundation is the most resource-intensive method, as it will need to be staffed, managed and governed, which takes time, effort and money – though that may be the sort of proactive involvement you’re after.

As a rule, foundations (or charitable trusts as they’re often called) only prove cost-effective when donating upwards of £10 million a year.

A DAF is a charitable giving fund. It’s usually administered on the donor’s behalf by a wealth manager, or a charitable organisation (such as the Charities Aid Foundation), in return for a fee.

From the donor’s perspective, a DAF lies somewhere between a donation and a foundation in terms of effort and input. In particular, it reduces the administrative burden if you tend to make repeated cash gifts to a registered charity through the year.

That’s because you can make a one-off annual donation to your DAF, complete the Gift Aid form, and where appropriate, claim higher-rate tax relief against the Gift Aid on your tax return. You can then make donations throughout the year, without having to make a further Gift Aid claim each time.

Tax pitfalls

However you choose to give your money, there are inevitably some tax implications to be aware of.

Inheritance tax (IHT) planning is essential, for two reasons:

  • You can reduce your IHT liability from 40% to 36% by gifting 10% or more of your estate to EU-registered charities through your will.
  • By contrast, donating large sums to a non-EU charity can leave UK-domiciled individuals with an upfront 20% IHT liability – which must be paid within six months.

Get expert advice if you’re considering giving to a charity based outside the EU (or in Iceland, Liechtenstein or Norway), to ensure that the upfront IHT liability doesn’t apply. You can donate through a EU-registered charity that undertakes projects outside the EU, or establish your own foundation or charitable trust.

The other key tax consideration is Gift Aid: a generous tax relief charities can claim when receiving donations. Higher-rate (40%) and additional rate (45%) taxpayers can claim additional tax relief on Gift Aid donations,

There are rules to follow for Gift Aid to apply. For example, you must receive nothing in return for your donation – that even includes charity auction prizes. If you contravene the rules, the charity won’t benefit from the relief, and nor should you.

Speak to the experts

Before going ahead with philanthropic spending, give yourself the time and space to think carefully about the purpose of your wealth; the impact you want it to have; and the legacy you want to leave.

Then seek tax advice on the options available to you, so your chosen charity gets the full benefit of your generosity; and you avoid an unexpected tax bill.

The KPMG tax team is here to help – please get in touch:

Jo Bateson
Partner, London Head of Private Client Advisory
E-mail - Jo.Bateson@KPMG.co.uk
Tel - +44 (0)207 694 5445

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