Philanthropists have different motivations when setting up a grant-giving charity. These include focusing their grant-giving under one umbrella and leaving a lasting legacy. Another reason is to build a better family where family members come together with a common goal to make the world a better place and provide an opportunity for the older generations to teach and encourage the younger generations of the family about the benefits of charitable giving.
These motivations can also be very tax-efficient, the outcome being that even more of your wealth benefits worthy causes. Below we explain the benefits of setting up a grant-giving charity and some of the ways we can help you meet your philanthropic aims.
We will keep the set-up and administration simple
Setting-up a grant-giving charity is simple. We will agree with you the terms of a bespoke charity constitution in line with your philanthropic goals. Thereafter, we will apply to the Scottish Charity Regulator ("OSCR") for charitable status and, once received, to HM Revenue and Customs for recognition as a charity for tax purposes. We will discuss with you how you wish to structure your giving both to charities that are known to you or to applications received. We will also liaise with other advisers, for example investment managers and auditors or independent examiners on your behalf.
Grant-giving charities as a lasting family legacy
You can choose your grant-giving charity's name and specific charitable purposes in line with your values. We will work with you on a grant-giving policy. We often work with families who include their adult children as trustees, as a platform for learning about the benefits of charitable giving, with the aim of making the charitable legacy continues for generations to come.
A grant-giving charity can be an effective way of taking a "hands-on" approach to making charitable donations. Recipients of donations are always keen to meet with their supporters, tell their story and explain the difference that a donation has made or will make. We will as a matter of course obtain reports from grant recipients about the practical impact and outcomes of grants received.
Tax benefits: Capital Gains Tax (CGT) Gift Aid and Share Aid
An individual who transfers money or shares to a charity can benefit from Gift Aid or Share Aid. These are valuable income tax reliefs, especially for those who pay higher rates of income tax or who have used their annual CGT allowance.
Charities are not subject to CGT on the disposal of any assets. Therefore, there are no CGT consequences for a charity disposing of investments with a view to either re-investing the funds or distributing the proceeds as grants. By contrast, if an individual held the investments in their estate then gifted the sale proceeds to charity, a substantial portion of their annual CGT allowance might be used and there may be an immediate CGT charge.
The inheritance tax (IHT) benefits of gifting to charities
Gifting to charities is generally "IHT efficient". Charities can be funded without negative IHT consequences: during lifetime, any gifts made by an individual to a grant-giving trust will be exempt from IHT, even if they die within 7 years from making the gift.
Any legacy in your will to a charity will be IHT-free. Furthermore, by leaving this legacy to charity, the taxable parts of your estate may qualify for a reduced rate of IHT (36% rather than 40%). This can be a substantial tax saving.
To qualify for the reduced rate, the donation to charity must be more than 10% of your total personal estate. Calculating the amounts for this relief can be complex. We recommend that you consult a specialist to ensure that your executors have the flexibility to take into account any changes in the value of your estate.
If you would like to discuss how we can help you meet your philanthropic goals please get in touch.