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Charities & Not for Profit

Publish date

31 March 2021

An introduction to philanthropy

In recent years, there has been increasing interest in philanthropy, especially – and encouragingly – from the younger generations. Concerns over issues such as climate change, access to education and perceived social injustices are driving a wide spread desire to ‘give back’ from high net worth individuals.

Yet despite an appetite to help, many are unsure where to start.  They want to ensure that what they do really will make a difference and that any donations they make will be used where they are most needed. There is also an increasing concern that donations to charity are going to be allocated and used inappropriately.

So, where should those with an interest in philanthropy start? The first step we would recommend is to look at what you want to achieve and why. What is motivating you to give? What are the causes close to your heart?

Setting objectives and developing a strategy

By its very nature, philanthropy is a long-term and strategic approach to helping identify and solve the root causes of particular issues and problems. This is one of the ways it differs from charity, which is often about providing immediate relief to an issue.

One of the aspects of philanthropy that appeals to wealthy individuals and families, is that it is something that can span and unite generations. While many will have specific causes they are particularly passionate about, philanthropic actions can include helping multiple causes through a variety of initiatives.

Taking the Bill and Melinda Gates Foundation as an example, its aim is to reduce inequality globally and it has identified that: “The path out of poverty begins when the next generation can access quality healthcare and a great education.”

Once a cause or causes have been identified, it is key to look at where exact needs lie and how you can help address these over a period of time. Taking advice from experts here is advised to help develop a comprehensive, long term and (perhaps most importantly) effective strategy.

Different ways to give

There are many ways to give through philanthropic activity including options such as venture philanthropy, where financial help is combined with hands on advice and social enterprise, which combines generating revenue with a social purpose.

It is also possible to set up your own charity as a way to manage your philanthropy. A charity can be set up by anyone who wishes to set aside some of their assets and/or income for charitable causes and setting up your own charity allows you to plan your philanthropy in a systematic way.

Through your charity you can make grants to other charities or charitable purposes that you would like to support and/or your charity can become involved in carrying out charitable work itself.  You can provide all of the funding for the charity yourself and/or you can get others to contribute.  There really is no limit on what your charity can achieve.

Consider the tax implications

There are a variety of ways in which philanthropic activity can have positive tax implications, and it is important to explore these to ensure that the maximum amount of financial help goes to the causes you are looking to help.

Under the GiftAid scheme, when money is given to charity by an individual, the charity receives an extra 25p for every £1 donated.  Additionally, higher rate taxpayers can also receive tax relief on the donation by claiming the difference between the rate they pay and basic rate of tax on their donation.

Individuals can also generally claim tax relief when giving certain assets, such as shares and land, to charity. Unlike cash donations under GiftAid, all the tax relief is claimed by the donor. This can allow some donors to be more generous because of the higher amount of tax relief available. There are also tax reliefs available when companies make donations to charity.

In addition to giving to causes during your lifetime, many individuals also chose to include gifts to various causes in their Will. Any such gifts will be free of inheritance tax.  There is also a specific inheritance tax relief available which reduces the rate of inheritance tax to 36% if individuals give a significant portion of their estate to charity (broadly 10% of your net estate).

There are also specific tax implications to consider when setting up a charity. Tax is always a fairly complex matter, so advice should be taken as early as possible.

Measuring impact

The final – and perhaps arguably one of the most important – element in developing a plan for philanthropy, is to look at how you will assess how effective it is. This can be complicated, especially as many philanthropic endeavours are long-term and designed to carry on through future generations of a family. However, in order to be truly successful, it is vital to decide on some key ways to measure success before starting out on your philanthropic journey.

At Thomson Snell & Passmore, we are here to guide you every step of the way. Please contact info@ts-p.co.uk if you would like more information on any of the matters raised.

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