With rising calls on their services, charities need support from donors more than ever. Taylor Swift set an example during her Eras Tour; we explain your options for helping them
Back in the summer when Taylor Swift mania swept across the UK, you may have read about her donations to food banks in each city she played, including in Edinburgh. One charity in Liverpool said she had donated enough to fund an entire year’s worth of meals, saying the donation was “beyond [their] Wildest Dreams”.
Swift’s generosity not only highlights the impact donors can have in making us aware of societal injustices and inequalities. It’s also a reminder of the benefits that personal giving can offer individuals, from a sense of making a difference to mitigating family tax exposure and so much more. If you want to step up your own donations, it’s worth taking advice on how to maximise the mutual benefits.
Gifts during your lifetime
If, like Taylor Swift, you want to donate during your lifetime, there are three principal methods to consider. The first is through regular or one-off donations, possibly through an employer’s Payroll Giving scheme which helps to maximise the amount donated by the individual in a tax efficient manner and with the additional benefit of Gift Aid for the charity.
Lifetime gifting not only benefits the charity, it also brings you income tax relief if you’re a higher-rate taxpayer. In addition, charitable giving can reduce your estate for inheritance tax purposes, and gifts of land, property or shares to a charity are eligible for both capital gains and income tax relief. Early conversations can help establish which gifts would be most financially effective for both you and your chosen charities.
Donating on a larger scale
If you’re thinking about larger-scale donations and more sustained giving, it’s possible to set up your own charity or family foundation.
Here too, there can be tax benefits, and you also get comfort over direct involvement in what your money is used for and the enjoyment of being engaged with particular charitable causes which are important to you. There’s an attractive intergenerational and educational aspect too, for example engaging family at a young age either as trustees or observers at board meetings.
A lesser-known alternative to establishing your own charity is a Donor Advised Fund, or DAF. Through a contract with the DAF provider, you can stipulate the charitable purposes the fund is held for and also the recipients if desirable but as the DAF account is a sub-fund of a registered charity, you’re not yourself burdened with the regulatory and legal aspects of its operation.
These three different routes to charitable giving all have pros and cons, depending on what causes you want to support, how much you wish to donate, and your appetite for hands-on involvement. An experienced private client and charities solicitor, often in conjunction with financial advice, can advise on these, supporting you on legal and governance requirements and helping you maximise tax-efficiency.
Charitable legacies in your Will
An alternative to lifetime giving is to do so in your Will. You can leave a fixed amount, specific assets or the residue of your estate after other legacies have been distributed. Your charitable legacy or bequest will either be taken off the value of your estate before inheritance is calculated or reduce your inheritance tax rate if 10% or more of your estate is left to charity.
For most charities, the ideal legacy will be one without conditions, but ultimately it’s up to you whether you want to stipulate in your Will any conditions on how your legacy is used. They should be clear and well drafted, and a Letter of Wishes can be helpful here. It’s also important to clearly identify a charity in your Will and include flexibility should that charity merge or cease to exist in the future.
By consulting with your chosen charity (or charities) when you make your Will, you can discuss with them what would be the best way for them to receive your legacy – for example whether they would prefer the transfer of a property or the proceeds of a sale. This conversation will also help the charity to budget for the future in what is an uncertain economic climate. Your own tax considerations may also drive your decision, and whatever you do, a well drafted Will is essential. Yet another good reason to get one drawn up!
