Article:

How and what to give

05 March 2021

The word "philanthropy" is broadly defined as the desire to promote the welfare of others. Whether you put cash in a bucket, make regular gifts, or you donate your time and expertise, philanthropy has to start somewhere and every bit helps.

Read Private View on Philanthropy, our full report into philanthropy and giving.
 

Lifetime giving

Giving during your lifetime allows you to get involved with the causes you support and see the difference you make. 

Direct to an existing charity

Donations direct to an existing charity are quick and easy to make, particularly where these are cash donations. These can be prompted by a current situation or personal experience. Some donors however are moving towards more strategic giving, making larger donations to fewer charities so that their gifts make a bigger impact on a chosen cause.  

Donor Advised Funds 

Donor advised funds are vehicles for charitable giving that are administered by a third party, and designed as a middle ground between direct giving and establishing your own charitable foundation. Donor advised funds are easy to set-up and use, and there are a variety of schemes available which suit most donors’ needs. They can be funded through cash donations, through payroll giving or by gifts of shares. You can make an immediate donation but then recommend grants from your fund to different charities over time. Unlike your own charitable foundation, because they are operated centrally by others, they remove the need to find trustees or deal with administrative aspects. 

Family Charities 

You can set up your own charity if you have decided to set aside some of your assets or income for charitable causes. There are different legal structures that can be used and they are governed in the UK by the Charity Commission and the Scottish Charities Regulator. They come with a significant administrative burden but may be a suitable way to structure more strategic charitable giving or involving the next generation in philanthropy (see the future of giving) and provide a framework for planning your charitable giving in a systematic and thoughtful way.

Community Development Finance Institutions (CDFI) 

CDFIs lend and invest in deprived areas that cannot access mainstream finance. They provide financial services to enterprises and individuals, with the aim of achieving both financial and social returns. There are tax incentives for investors through the Community Investment Tax Relief (CITR) scheme.  CITR is run jointly by HMRC and the department for Business Innovation and Skills (BIS). It is available to any individual or company with a UK tax liability investing in an accredited CDFI where the investment is held for at least five years.
 

Corporate Social Responsibility (CSR)

We hear a lot nowadays about Corporate Social Responsibility, or CSR, but what does this actually mean? In essence, it’s about looking at an organisation as a corporate citizen, understanding the role that they play in society and where they can add further value. For BDO this includes taking into account our company’s values, purpose, skills and business drivers in response to societal issues that we are well placed to respond to. CSR is increasingly important for our world. Governments and non-profits cannot solve the big issues alone and businesses have an important responsibility to share skills, knowledge and resources in addressing complex problems.
 

Corporate Philanthropy

Give as you earn 

Payroll giving is a way of giving money each week or month direct from your pay. It is a tax-efficient way for employees, non-executive directors and those receiving a company pension to give a regular amount to one or more charities, or to make a one-off gift. The donation is made after your National Insurance contribution is calculated but before Income Tax is worked out and deducted. This means that you receive tax relief immediately on the value of your gift. Another way of looking at it is that money you would have paid in tax goes to your chosen charity. 

Match funding

Many companies have matched funding schemes, where they will match the amount employees raise, or they have schemes where they will make a contribution towards an employee's fundraising.

Company foundation 

For entrepreneurs and family business owners, one consideration is whether to donate personally or create a company foundation. This can be a great way of involving employees and other business stakeholders.

Tax Incentives 

Under the gift aid scheme businesses can obtain tax relief when they give money, whether as a one-off or a regular payment. It applies to donations of money of any amount to UK charities. Companies can make a charitable donation through Gift Aid simply by giving the full amount to charity and deducting the amount as a ‘charge’ when working out profits for corporation tax purposes. The way in which tax relief is given depends on whether the business is a company, a sole trader or a partnership. Corporates also qualify for tax relief when giving certain assets, such as shares and land, to a UK charity. 
 

Types of giving

Cash

 

Donating through Gift Aid means charities can claim an extra 25p for every £1 gifted on all qualifying payments, provided the donor has paid sufficient income tax or capital gains tax in the tax year and have made a Gift Aid declaration.

The donor receives Income Tax relief at the higher and additional rates, if appropriate.

It is possible to get relief sooner by carrying back certain donations made in the current tax year to the previous tax year.

Assets

 

Income Tax relief and capital gains tax relief may also be available on gifts of qualifying land, property or shares to charity. Income Tax relief is given on the value of the benefit to the charity. Relief is given by way of a deduction of the value from the donor’s total taxable income for the tax year in which they made the gift to the charity.

A donor will not pay Capital Gains Tax on any qualifying land, property or shares gifted to charity, instead it is treated as a disposable made on a no gain/no loss basis.

Qualifying investments are listed shares (including shares listed on AIM and recognised foreign stock exchanges) and some other qualifying investments – primarily, units in an FCA authorised unit trust, shares in a UK open-ended investment company or an interest in an offshore fund. Gifts of other assets, including unlisted shares, chattels and crypto-currency do not attract Gift Aid or income tax relief but the donor would not pay capital gains tax on the donation.

Legacies

 

A legacy left to a charity in a Will does not count towards the total taxable value of the deceased’s estate as it is an exempt gift. 

Where that legacy equates to at least 10% of the deceased’s 'net estate', the rate of Inheritance Tax applied to the rest of the estate is reduced from 40% to 36%.

This relief was introduced with effect from 6 April 2012 and HMRC’s most recent figures show that £40m of IHT was saved using this relief on the estates of those who died in 2017-18, with just over 9 per cent of taxable estates benefiting from the relief.

Fundraising & sponsorship

 

By fundraising, an individual not only raises money through sponsorship or events by encouraging individuals or businesses to donate to their chosen cause but also raises awareness for that cause.

Many companies also have matched funding schemes (see Corporate Philanthropy).

Volunteering

 

Volunteering is a way to contribute an individual’s time and skills to a charitable cause.

There are many different ways to volunteer from helping the elderly members of the community with shopping or household tasks to mentoring a young person.

Volunteers can also share their skills and talents by offering training, coaching or advisory services to individuals or charities.