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Charitable and philanthropic giving — creating a sustainable global future

Care must be taken at the outset to ensure that the benefits are experienced by both the donor, the family and the beneficiaries in the long-term.

In the latest UBS Billionaires report, wealth has apparently reached new heights, with billionaires giving more than ever before to tackle the pandemic. The report has seen an increasing focus on sustainability goals across their investment activities, as well as an apparent increase in succession planning. With a generation of environmentally conscious individuals looking to create a more sustainable global future, it is no wonder that families are clearly valuing intergenerational philanthropy.

We are often asked to assist individuals and families with their philanthropic and charitable giving, both during their lifetime and on death.

The benefits of charitable giving

Philanthropic and charitable giving can bring many benefits, including tax relief. The benefit to the charity is that, through the UK’s Gift Aid scheme, it can reclaim the basic rate of tax from the UK Government, being 20% of the value of the grossed-up donation (equating to 25% of the value of the actual donation). There is also a benefit to taxpayers, in that you can claim back the difference between the tax you have paid on the donation and what the charity receives. If you pay tax above the basic rate (i.e., you are a higher rate or additional rate taxpayer) you can claim the difference between the rate you pay and the basic rate on your donation. Capital gains and income tax relief may also be available on any listed shares and other qualifying investments.

As well as tax benefits, charitable giving can also bring the following benefits:

  • stronger family identity and unity, with the creation of a common goal
  • it can help create a more sustainable global future
  • knowledge that you are supporting a cause that is important to you and you are helping to make a difference.

We have a dedicated team of experts, who can advise on a broad range of charity and philanthropic matters including:

  • the creation of new charitable trusts and companies
  • registration with the Charity Commission and HMRC
  • tax aspects of charitable giving
  • the responsibilities of charity trustees generally.

Whilst setting up a charitable trust or foundation can help to create a personal legacy it is also important to consider the following:

  • Do the prospective trustees have the necessary time and commitment to devote to the role?
  • What does the ongoing administration of the trust entail and what are the costs (both in setting up the trust and the ongoing administration)?
  • What are the risks and complexities involved? For example, is land involved and are staff going to be employed?

Care must be taken at the outset to ensure that the benefits are experienced by both the donor, the family and the beneficiaries in the long-term. It is important to explore what the donor/founder’s objectives are against what activities the chosen charitable recipient can engage in.

Ongoing advice may also be sought throughout the course of the charity’s life, for example in relation to decision making and the trustees’ duties, to ensure that the decisions are made in the best interests of the charity.

In a recent judgment (Knightland Foundation v Charity Commission [2021] UKFTT 0365), interim managers for the Knightland Foundation (the “Foundation”) were appointed as there were concerns surrounding the charity’s governance and finances. This included failure to document decisions and decision-making processes in relation to the investment and other use of the charity’s funds. The case highlighted the importance of creating a clear separation between the charity finances and the individual/trustees’ personal finances, as well as ensuring that decision-making processes are well documented. We can assist and advise clients and charities throughout.

Setting up a new charity — which legal structure is appropriate

It is important that the appropriate legal structure is used to best accommodate giving.

Some of the most used structures to set up a new charity are:

  • charitable trusts
  • charitable companies
  • charitable incorporated organisations (CIOs).

When might a charitable trust be suitable?

It may be appropriate to operate a charity as a trust where you or your family wish to manage your charitable giving for a general or specific charitable purpose.

Your family can be more involved in your giving when a trust is created and a legacy is established that may continue for many years, even after death. There may of course also be favourable tax treatment from the date that funds are placed into the charitable trust.

When a charitable company may be suitable

A charitable company may be a suitable choice for medium-sized and larger charitable giving, where there are activities involved that attract a greater level of risk and complexity. This might include ownership and use of land, the employment of staff, or the provision of services. One of the advantages of a company as a structure is that it has the benefit of limited liability.

When a charitable incorporated organisation (CIO) may be suitable

The CIO is a structure that is available for charities with annual income over £5,000 and to companies wishing to convert to CIOs. It seeks to provide some of the benefits of being a company but without the burden of dual regulation by both the Charity Commission and Companies House.

There are various reasons why you may decide to set up a CIO or other type of charity, for example if you have a charitable purpose and public benefit. It also has other advantages in terms of administration, in that smaller CIOs will be able to prepare receipts and payments accounts whereas this option is unavailable to companies. Like with all of the structures available, there are both advantages and disadvantages to each that must be carefully explored. We have an expert team who can examine your circumstances to ensure the most suitable structure is used.

Further considerations

Once a trust that fulfils the criteria for charitable status is created, the trustees are generally obliged to apply to the Charity Commission to register it as a charity. The application includes details of the proposed charity’s purposes, its structure, and criteria in relation to its grant making policies where relevant. Our dedicated team of experts can guide and advise throughout.

It is also important to be aware that if more than 50% of a charitable trust's income is derived from investments managed by an external investment manager, then the trust will also be obliged to report to HMRC on the grants it makes. We can also assist with this.

Finally, it is also important to explore alternatives to setting up a charitable trust or company. This might include leaving an outright gift in your lifetime or leaving a legacy in your will. We can advise on these aspects too.

Charitable and philanthropic giving can have its advantages, but it is also a complex area that requires careful planning and attention to detail. We are here to help with all aspects and our expert team will be happy to guide you throughout.

For more information on any of the issues raised, please contact our private wealth solicitors.

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