In the UK a staggering 65% of society makes regular charitable donations. Notwithstanding, few have a philanthropy plan that can support them to maximise their ‘giving’ potential which can make a considerable difference to their chosen cause.
Philanthropy is a fundamental backbone of society. It facilitates imperative medical research, it assists communities in recovering from tragic and unprecedented natural disasters, as well as safeguarding our vulnerable. It is inevitable that at some point in our lifetimes, many of us will become forced to depend on charitable support.
In recent years, there has been a significant shift in how charitable gifting is perceived in society. Indeed, it was once regarded as the actions for only the extremely wealthy, but now charitable donations have become an intrinsic part of society and communities, with integral value. Many of the families that we have in our client bank, aspire to hand this value down through the future generations of their families.
“If you're in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99 %”.
From the odd sponsorship here, a charity auction, and a one-off lump sum there, charitable donations can mount up and make a momentous difference. If considering this more prudently, however, philanthropy planning is extremely beneficial for gaining the most value for money for the causes you choose to champion.
The Coronavirus Effect
An astounding one in three UK. charities that were questioned, (35%) reported a spike in demand for their services owing to the current Covid-19 crisis which shows how palpable both tragedy and support are.
Amongst those charities reporting an increase in demand, six in ten reported that demand had increased by more than a quarter, with one in four stating that demand for their services was 50% higher than before the crisis hit.
Despite this rapid acceleration of plight, over half of the charities in the U.K. surveyed, (53%) reported a plummet in donations; with a mere 18% saying that donations had increased. An alarming number of charities (49%), admitted that they had sought or received some form of emergency grant funding to get them through the crisis.
There are many benefits to building philanthropy planning into your financial plan:
1. Maximise your Donation Without it Costing You a Penny More
A strategic and well-considered plan can help to maximise the effect your funding has on the causes that are dear to you. A financial planner can assist you with your investment so that your donations can accumulate regular income for the charity, or can even elevate the sum of your donation. The ‘Gift Aid’ section below explains how you can give more to your charity without it actually costing you more.
2. Continue your Giving for Multiple Generations
Many families aspire to have a family legacy that is to support multiple causes, throughout the family generations. By creating a charitable trust, this dream can be brought to fruition. If you want to donate to charity in a multitude of manners, from multiple causes, one-off gifts, a charitable trust might be the solution. Setting up a trust provides an invaluable framework for planning your donations strategically and systematically.
3. Think Holistically About Your Finances
A financial planner can help you to prudently determine the amount you can donate, as well as the frequency of your donations, for example.
Allocating a considerable amount of your hard-earned money necessitates careful planning to ensure it does not negatively affect your future finances but that it also has the maximum advantage for the beneficiary. Different savings and investment accounts have diverse tax rules and penalties, therefore, having an expert who can take you through each step of allocating funds for investment to selecting the most efficient means of donating can substantially save you money in the long-term.
Furthermore, formulating a longstanding philanthropy plan can help you to stay ahead in terms of budgeting and tracking your personal finances, to planning for future retirement.
4. Reduce Your Income Tax
It pays to be charitable. Your donation can, in fact, reduce the amount of income tax you pay.
If you are a U.K. taxpayer, donating to a registered charity or a Community Amateur Sports Club (CASC) through income, pension, or capital gains, you are entitled to claim an extra 25p for every £1 that you donate. It won’t cost you a penny extra.
Charities can claim Gift Aid on most donations, but some payments do not qualify.
If you are a higher rate taxpayer, the following example shows how tax relief works:
You donate £100 to charity; the charity claims the Gift Aid; your donation becomes £125 in total. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).
Shrewd philanthropy planning could help you to:
- Avoid a higher rate of tax payable, by increasing your basic rate tax band.
- Recover your personal allowance from the 60% effective tax rate falling on earnings between £100,000 and £123,700.
- Remove you from the additional (45%) tax band.
It could be that you are considering leaving a charitable donation in your will. When donating to causes close to your heart, these donations could range from cash, properties, land, or more specific items. It is important to know that charitable donations are exempt from inheritance tax (IHT). When you donate at least 10% of your estate, the rate of inheritance tax on the rest of your taxable estate drops to 36%.
Qualifying for Gift Aid
Your donations will qualify, if they do not equate to more than 4 times what you have paid in tax, for that tax year (6 April to 5 April).
You must tell the charities you support if you stop paying enough tax.
Payroll Giving for Employees
The Charities Aid Foundation (CAF) ‘Give as You Earn’ helps over 2,700 companies and 250,000 staff to give over £74million simply, securely, and tax-effectively to charities annually.
Since 1987, over £1.3billion has been donated through this scheme.
Your donation is calculated after your National Insurance contribution is deducted, but before Income Tax is taken; meaning part of your donation comes from money that would otherwise have been taken by HMRC.
Coronavirus and Gifting
CAF conducted a recent survey with the general public:
Overall, this is a positive outcome, with two and a half times the number of people willing to donate more than those who will reduce.
A final thought
For some donors, however, reluctance and fear will set in and may prevent you from participating in charitable donations, despite the plethora of benefits discussed here. Questions will permeate such as where is the money going, and who will benefit? To resolve this quandary, several solutions exist; one is ‘microfinance’ from Care International UK.
‘Lend with Care’ is a mode of supporting budding entrepreneurs to gain a head start in business. You lend them some capital, they start the business, and if their business flourishes, you get repaid. You can then choose to repeat the process with another budding business in need of support. Yes, there is a risk, but the fear and reluctance are eased by the fact that these are real individuals looking for a fresh start and willing to work hard for success. You really can change a life with a microloan. For more information on Lend with Care, visit this blog.
If you would like to partner with a financial planner to create your own philanthropy plan, please contact us today.