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Robert Paul, Partner in the US Family Office spoke to John Canady, CEP at NPT UK and Iain Younger at Frank Hirth about giving philanthropically to ensure that the maximum benefit is acheived, we have summarised their discussion below.
Altogether, charitable giving is a way of life for many Americans. In 2017, charitable giving in the US reached an estimated $410bn* (£315bn), a figure that far outpaces the £10.3b** given to charity in the UK in the same year.
Charitable donations and philanthropy are increasingly being done with wealth managers and accountants in the US, in part because donations come with tax advantages and form part of a holistic financial plan. For Americans living in the UK, they face specific challenges, especially if there is a desire to support charities in both countries.
The problem is that, when making charitable donations, tax breaks are only earned on both sides of the Atlantic if donations are made into dual-qualifying charities – in other words, those that are registered charities in both the US and UK. Many US charities (including many college endowments) are not recognised as charities in the UK and cannot be used to reduce a tax bill with HMRC, and this can catch people out.
But what if the objective is to , remain tax efficient whilst leaving a legacy for future generations of your family, and create a lasting philanthropic impact without being constricted in your choice of charity. In the past this may have involved setting up a private foundation in the US or a charitable trust in the UK. However, this method can be prohibitively expensive
One solution may be to use a vehicle called a Donor-Advised Fund (DAF). A DAF is a philanthropic fund held within a charitable organisation that allows donors to receive immediate tax relief on their contributions and then make donations from the DAF to specific charities over time.
It works a bit like a savings account for donations. Rather than the funds going to a charity straight away, they remain in an account and can be managed by an investment manager in order to increase in value or deliver an income for annual donations. When it comes time to providing grants or donations, it can be done all at once or it can be drip-fed throughout the year. Moreover, a DAF allows for a level of anonymity, meaning that philanthropists can maintain a low-key approach if they prefer.
Alternatively, it is possible to make single gifts using a dual-qualified service. In this scenario, a donor can make a one-off gift to, say a university in the US, and an adviser can make sure it is done in a tax-efficient manner in both countries.
No matter what your approach to charity may be, sound advice and new products such as DAFs make it easier than ever to leave a legacy while also being tax-efficient on both sides of the Atlantic.