For goodness' sake

It's inspiring to see investors increasingly embrace philanthropy and use their wealth to make a lasting impact. However, it's crucial to recognise that efficient giving goes hand in hand with understanding tax implications, maximising benefits for both the donor and the recipient.

Here are some efficient investment strategies to make your money have more meaning:

1.Give during your lifetime

A significant way to maximise the impact of your donation is to give during your lifetime. Not only will you witness the positive change of your contributions, but it also offers substantial tax benefits. By using Gift Aid—an income tax relief scheme—UK taxpayers can boost the value of their charitable donations by 25p for every £1 given.  

Charities can reclaim the basic rate of income tax on donations made by individuals, increasing the total amount received by the charity. Moreover, higher-rate taxpayers can also claim additional tax relief on their self-assessment tax return, reducing their overall tax bill. Finally, a gift made to a qualifying charity is exempt from inheritance tax.

2.Give as stocks and shares

Donating stocks and shares is a win-win situation for both the donor and the charity. When you donate appreciated securities, you may be eligible for capital gains tax relief, meaning you don't have to pay capital gains tax on the increase in value of the shares.

Additionally, the charity benefits from receiving an asset that they can either hold or sell, using the proceeds to fund their projects and initiatives.

3. Give as part of your Estate

Leaving a charitable gift in your will can be a powerful way to support causes close to your heart while reducing the burden of inheritance tax on your estate. Charitable donations made in your will are exempt from IHT, meaning they won't be included in the value of your estate for tax purposes. By strategically allocating a portion of your estate to charity, you can ensure that your legacy continues to create a positive impact.

4.Set up a charity of your own

Establishing your own charity can be an immensely rewarding adventure, enabling you to take full control of how your wealth is used to advance the causes closest to your heart, as well as creating a bespoke legacy for your family.

However, for many people, this endeavour could become more than a full-time role, so trusted professional advice will help you decipher if this is going to be the most feasible and beneficial course of responsible giving, making you aware of each legal and tax-related consideration.

5.Consider a Charitable Trust Fund

Instead of focusing on a single charity, consider giving to a Donor Advised Fund (DAF). A DAF is a fund administered for you by a registered charity. You receive any applicable tax benefits at the point of funding the DAF, but then have the flexibility of selecting onward donations to a range of charitable initiatives over whatever time period suits you. A DAF is generally quick and easy to set up, particularly compared to registering a new charity.

At SJP we partner with Charities Aid Foundation, the UK’s leading DAF provider. The CAF Donor Advised Fund (The CAF Charitable Trust) can be funded with a range of assets and offers the opportunity to grow your initial gift via capital gains tax exempt investment options. You can then request onward donations to charitable organisations in the UK and around the world. 

This can be a great way of providing financial education to younger family members, and retaining flexibility over what charities and causes you would like to benefit over the longer term.

Working with a trusted financial adviser to integrate responsible giving into your long-term financial plan can be transformative for the investor and their supported charities. At SJP, we believe that responsible giving is a journey that starts with aligning financial goals with philanthropic aspirations. By working closely with our clients and their trusted advisors, we strive to unlock the full potential of their resources, empowering them to be impactful philanthropists and make a difference in the world for future generations.

This article was written by Chris for us and published in Square Mile magazine in April 2024.