There is often a misconception that philanthropy is for the affluent. Yet the dictionary definition of philanthropy says nothing about the level of a philanthropist’s wealth.
Philanthropy is defined as “the desire to promote the welfare of others, expressed by the generous donation of money to good causes”.
Nowhere does it state that you must have great personal wealth or a large business asset.
The truth is that the only “must” is to give something financially. What philanthropy means to one person can be very different to the next.
That’s why we’re often met with surprised looks when people who turn to our team for advice about giving or legacies - as they are in growing numbers - hear what they intend described as “philanthropy”. But it is.
However much money you would like to give or ring-fence, the significant question for them can often be, would they like to do something in life or death? And it’s one around which discussion has grown amid the UK Government’s heavily debated reforms to Inheritance Tax.
Lifetime gifting might start off as a one-off donation, possibly moving to regular giving through an employer’s Payroll Giving scheme to maximise the amount donated in a tax-efficient manner, with the additional benefit of Gift Aid for the charity.
This can bring income tax relief if you’re a higher-rate taxpayer - and charitable giving can reduce your estate for inheritance tax purposes. Gifts of land, property or shares to a charity are eligible for both capital gains and income tax relief.
Early conversations with solicitors and financial advisors can help establish which gifts would be most effective for you and your chosen charities.
If 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. You may also want the enjoyment of being engaged with particular causes, perhaps also involving other members of your family.
This can also be done through a Donor Advised Fund (DAF). This lesser-known alternative to establishing your own charity essentially hands over operations - with the operation defined by you - to a third-party who removes the legal and regulative responsibilities of running a charity from you. These are often via the likes of community foundations.
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 to one or more charities. Your 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 net estate is left to charity.
For most charities, the ideal legacy will be one without conditions. Any, though, should be well drafted, with the charity clearly defined, along with clauses should they merge or cease to exist.
By consulting with your chosen charity (or charities) when making your Will, you can discuss with them the best way to receive your legacy, helping them budget for the future too,
Your own tax considerations may also drive your decision, and whatever you do, a well-drafted Will is essential.
Everyone’s journey of giving is different. Experiences - often through health or personal connections - shape that. It’s important, though, not to dismiss philanthropy as being for the super-rich. It’s surprising who our philanthropists actually are.
Published 3 November
First published in Friends of The Scotsman
