28th February 2022
As we head to the end of the tax year, please consider making a donation as part of your annual planning. To simplify the process, a Donor Advised Fund (DAF) can be used as a tax effective giving vehicle.
Prism the Gift Fund (Prism) is a UK registered charity and administers the giving of individuals, groups, corporates and foundations making significant gifts to charities all over the world through two structures, a Donor Advised Fund (DAF) and Collective Fund (CF).
DAFs are a time, cost, and tax effective alternative to setting up one’s own grant making foundation. Making donations around the world can be complex, time consuming and requires expertise in due diligence, governance and compliance. Prism provides a solution to this administrative headache and keeps appropriate records of one’s giving. At the end of each tax year, we provide our clients with a simple statement to give to their adviser which includes all the information they need to calculate a client’s tax returns.
Keep reading to see the different tax reliefs you could be entitled to when donating cash, shares, and legacy gifts to charity via a DAF…
The first and most widely known tax break is Gift Aid. Gift Aid has a split tax incentive between the donor and the charity. The charity is eligible to claim 25% extra on a donation from HMRC and if the donor pays over the basic rate of tax, they are eligible to claim tax back on the gross donation. In the UK, between £500m and £750m is unclaimed in Gift Aid every year meaning charities are missing out on extra support and donors are missing out on claiming back on the gross donation. If donors are eligible, Prism claims the Gift Aid on their behalf. For res-non-domiciled individuals utilising Prism Offshore, they may still be able to Gift Aid against their UK income without having to remit the money.
Gifts of Shares:
Donors can make gifts of shares listed on any stock exchange to charitable causes. Gifts of shares come with tax incentives: not only are the gifted shares not liable to Capital Gains Tax, but the donor can also claim full Income Tax relief at their highest rate. By gifting shares to Prism, the donor is committing any income generated from those shares, and the shares themselves, to charity. The donor can choose not to sell the shares immediately, and their charitable pot can be contributed to by annual dividends from the shares, as well as the eventual sale of shares. The donor receives tax relief upon donating to Prism, but there is no obligation to decide where to onward gift straight away.
HMRC offers a reduced Inheritance Tax rate for those donating 10% or more of their taxable estate to charity. The remainder of the taxable estate following the donation will be taxed at 36% rather than the 40% rate. Prism’s structure allows for a gift to be made to charity in a will, and the chosen beneficiaries of the will to be named as executors of the charitable account within Prism.
Using Prism to invest in social enterprises is a great way of starting a positive cycle of investment and return. As well as utilising Gift Aid, and therefore increasing the size of your Prism account (and investment) by 25%, any returns will flow back into your account to be gifted out to other causes or invested again.
Prism partnered with King Baudouin Foundation, a 501©(3) to allow US donors to deduct at source to the extent permitted by US tax law for their contributions. This is another great way for donors to route money into the UK and donate all over the world.
The benefit of donating via a DAF is that as soon as the donor contributes to the DAF they may be entitled to the relevant tax reliefs, however they are not obligated to onward gift straight away. This is a fantastic giving vehicle for anyone looking to benefit from tax reliefs imminently but would like to take more time to think about how they want to distribute their charitable funds to causes they care about.
If you think any of these tax reliefs could benefit you or your clients, get in touch today with Amy, Prism’s Relationship Development Manager, to find out how you can open a DAF and donate to charity before the end of the tax year.