Charitable giving is not just an act of generosity; it's a powerful tool in financial planning.
Having spent many years working for some wonderful charities, I know only too well just how much these amazing organisations rely on legacy gifts and the difference they make. In fact, over the past 30 years legacy incomes have quadrupled in value from £0.9bn in 1993 to £4.0bn in 2022/23*. This whopping figure accounts for almost 30% of fundraised income which just goes to show how important these donations are.
Why consider charitable giving?
Charitable giving is not just an act of generosity; it's a powerful tool in financial planning. For those who have accumulated wealth over a lifetime, it offers a way to ensure your assets are put to good use, supporting causes you care about. It's also a way to connect with the community and create a lasting impact that continues on after your lifetime.
Choosing the right charities
Selecting a charity is a personal decision, but it's important to do your due diligence. Look for registered charities that align with your values and have a track record of using donations effectively. Consider the causes that are close to your heart, whether it's local community projects, medical research, or international aid.
Remember a charity explains how to leave a gift in your will but essentially; you need to choose your charity, decide on the type and value of gift and then inform your solicitor or will writer so they can include your wishes in your will.
Incorporating charitable giving into inheritance tax planning
Charitable giving is an integral part of Inheritance Tax (IHT) planning. Any gift you make to a UK charity is free from IHT and can help reduce the overall amount of IHT that your estate will pay.
Additionally, if you give at least 10% of your taxable estate to charity, the IHT rate for the rest of your estate drops from 40% to 36%. This can result in significant tax savings while supporting worthwhile causes.
Lifetime giving v legacies
Lifetime giving allows you to see the benefits of your donations and how they contribute to the charity's work. Once again, there are tax benefits to this, not only can you potentially reduce future IHT bills, you can also claim tax relief on your charitable donations through Gift Aid or Give as you Earn.
- Gift Aid Gift Aid is a scheme that allows charities to reclaim the basic rate of tax on your donation. This means if you donate £100, the charity can claim an extra £25 from the government, making your total donation £125. If you're a higher-rate taxpayer, you can claim back the difference between the higher rate of tax you pay and the basic rate on your donation
- Payroll Giving also known as Give as you Earn (GAYE), this is a way to donate directly from your salary before tax is deducted. This means if you're a higher-rate taxpayer and you donate £100, it will only cost you £60, but the charity still receives the full amount
Should you be in a position to donate more, consider a substantial gift to a charity. Such significant donations can greatly aid the charity by funding particular initiatives, job positions, or facilities and often let you witness the direct results of your giving.
On the other hand, leaving a legacy gift can form a part of a well-structured estate plan and ensure that your support for the charity continues.
Involve your family
Whatever your choice, involving your family in your charitable decisions can be a rewarding experience. It's an opportunity to pass on philanthropic values and engage in meaningful conversations about the impact of wealth and the importance of giving back.
The benefits of charitable giving are clear. For the donor, it provides a sense of fulfilment, knowing that their wealth is making a difference. It can also bring about financial advantages in the form of tax relief. For the charity, it means receiving vital funds to continue their work, often leading to transformative changes in the areas they serve.
If you would like to explore how you can provide a lasting legacy please do get in touch.
By Catriona Bryden
*https://www.legacyfutures.com/resources/data-dashboard
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited 16/07/2024
Will writing is not part of the Quilter Financial Planning offering and is offered in our own right. Quilter Financial Planning accept no responsibility for this aspect of our business.
Tax treatment varies according to individual circumstances and is subject to change.
Inheritance Tax Planning is not regulated by the Financial Conduct
