Communities everywhere are experiencing financial hardship as businesses close and jobs are cut, leaving people increasingly reliant on charities and not-for-profits to help pay for daily necessities. The financial impact of coronavirus support packages and significantly lower tax revenues for governments also means that philanthropy could have an invaluable role in contributing funds to targeted projects such as the development of vaccines and antibody tests. It could also help sectors which have been hit particularly hard by the crisis, such as the arts, to recover.
Charities are also increasingly unable to rely on normal fundraising income streams. Those which are reliant on ticket sales or membership fees, such as theatres or museums, have been forced to close until further notice, and yet more (for instance NHS Trusts) are seeing their costs escalate. At a time when the global need for philanthropy is arguably reaching a peak, many existing charities are struggling to provide the community benefits they were set up to deliver.
In this context high-net-worth individuals and philanthropists might well ask how best to donate with maximum impact. Some options are:
- Covid-19 fundraising campaigns by major charities
Various major charities, such as the Wellcome Trust and the Gates Foundation, announced in early March campaigns to assist the EU’s Coronavirus Global Response fund and to raise funds for the development and deployment of vaccines and tests. The scale of philanthropy needed is huge; initial seed funding requirements for the Coronavirus Global Response campaign was estimated at $8 billion. It is also possible to donate directly to organisations such as the World Health Organisation, which has established a Covid-19 Solidarity Response Fund.
- Emergency funds
Many charities have established emergency funds to help support small and medium sized charities, whether suffering from reduced income streams, operating in particularly disadvantaged parts of the UK or particularly affected by the pandemic. This includes organisations such as the National Emergencies Trust, Charities Aid Foundation and Big Society Capital, as well as many smaller charities.
- Impact investment funds
Banks continue to launch impact investment funds which provide funding for projects or businesses seeking to make a positive social and/or environmental impact, as well as delivering a financial, return. Although not classed as charitable giving for tax purposes, the intention is for returns to benefit society as well as the investor. Such investing could be especially important at a time when government resources may be directed elsewhere.
- Direct giving
Diverting resources towards Covid-19, where this reduces philanthropists’ normal pattern of giving, should be carefully considered. Charities not aimed specifically at assisting with vaccine development or the direct impact of the pandemic still rely on donations to continue to function. Continued direct one-off or regular giving in the normal course of things is still very much needed. Any such donations should be unrestricted, bearing in mind that many charities will need to divert resources from specific projects to cover their basic running costs.
Those who do choose to donate or to increase their level of charitable giving should bear in mind that there can be financial benefits associated with this:
- applying Gift Aid to a cash donation (other criteria also apply) not only enables the charity to reclaim an amount from the government, equal to the basic rate of tax paid by the donor on that income, but also allows the donor to reclaim the difference between the basic and higher rate of tax. Gift Aid can be retrospectively applied to donations made in a prior year.
- if certain assets are standing at a “gain” (for instance shares or property) these assets can be donated to a charity without a capital gains tax charge on the donor.
- in addition to this, the value of any capital assets donated (not cash) can usually be claimed by the donor as a deduction against their total income for the tax year before income tax is calculated.
The source of funds used to make donations should be carefully considered if the individual is a remittance basis tax payer, since donations from offshore funds to UK charities could cause a taxable remittance. However, using non-UK mixed funds to make charitable donations can be very efficient if properly structured, and some UK charities have non-UK accounts to encourage this.
If you have a question on the above, or would like to learn more about tax-efficient charitable giving or establishing a charitable vehicle, contact BCLP’s Private Client team.