Passing on your wealth to charitable causes

At a glance

  • People often question how to create a plan for their money when they’re gone, particularly those who are child free.
  • Philanthropy and charitable giving means you can make a difference while also putting your money to work as hard as it can.
  • Thinking about the causes most important to you, and the impact you want to have, is a first step towards implementing your philanthropic vision.

We can help you to realise the tax benefits of philanthropy and charitable giving, and talk you through the options available to you.

For many people, passing on the wealth they’ve built over a lifetime to their children or grandchildren is an important long-term financial goal. There are other ways to have a positive impact for others, through philanthropic giving. 

Giving back is one of our core tenets, and we understand the desire to make a difference. Implementing your philanthropic vision and the charitable impact you want to have, now and in the future, can also have important tax benefits.

Thinking about what’s important to you

St. James’s Place Partner Nigel Helen shares an example of a married couple in their 50s who had never had children. They’d built a fair amount of wealth over a period of ten years, partly through selling shares in a company. 

While both had causes they cared about – one of them volunteered for an organisation that worked to provide safe spaces in schools to help support children’s mental health – they had not thought much about the charitable impact they wanted to have and were not aware of the tax benefits. 

“I asked them, ‘What’s important to you? What’s the money for?’ No one had ever asked them that before,” says Nigel. He talked them through options including setting up their own charitable trust. He noted that this comes with ongoing responsibilities and upfront costs, but they could appoint an organisation such as Charities Aid Foundation to handle it for them. 

“They have a service by which you can have an account with them under the umbrella of their trust, so a lot of the heavy lifting is taken off your hands. But you still have discretion over how to allocate the funds to charities,” he says. 

Does leaving money to a charity reduce Inheritance Tax?

Philanthropic endeavours can help to reduce Inheritance Tax (IHT) and bring other tax reliefs, too. So, as well as helping to ensure your money does some good in the world and supports the causes you care about, it can also make it work harder through reliefs and allowances.

In the case of the couple above, the money earned from their shares would have been subject to more than £2 million in tax. But by gifting those shares to charity, explains Nigel, they were able to reduce the value of their estate for IHT purposes – an important consideration for their niece. Gifting also helped them to remove and reduce their Capital Gains Tax and Income Tax liability respectively.

“The money would just go to the government in tax, so why not have it go to charity instead?” says Nigel. “It was a light-bulb moment, really.”  

How do I choose a charity to leave money to in my Will? 

Like the couple above, you may already have causes you want to support. Perhaps you have personally been touched by a particular issue or illness. When you’re considering which organisations or causes to leave money to, you can choose to talk this through with us or keep it private. 

“Giving is very personal, and one of the advantages of a charity foundation is that it’s anonymous,” says Nigel. “The wealth-planning process can help you on your journey and shape your giving. It can form part of the conversation as you consider which charities to give to, when and how much you give, and how much involvement you’d like to have. You can also network with other philanthropists to discuss what they’ve done.”

How do I leave a legacy to a charity? 

What are charity legacies, and what is the difference between a legacy and a donation? A legacy is about leaving money or assets to charity in your Will when you die. A donation is a one-off gift to a charity that can be made during your lifetime or after death. 

Generally, philanthropy is about building assets during your lifetime so you can give on an ongoing basis as well as leaving a legacy. You might use a trust structure to do this, which will give you more control over how and when your money is given. 

Or, if you opt to give through a charitable foundation, you could give a charitable endowment, an invested pot of money that can give a charity a reliable stream of annual income. You could even donate a property that generates rental income to a charity so it can benefit from the monthly payments. 

When should I start planning my philanthropy or charitable giving?

Philanthropic endeavours and charitable giving shouldn’t be treated as an afterthought, but instead should be built into your wider wealth plan, suggests Tony Clark, Senior Propositions Manager at St. James’s Place. 

“IHT planning is making sure that you’ve got all your plans in place so that you’re passing on a legacy, but actually that planning starts years ahead. An adviser will help you think about how best to use your money to support any worthy causes or charities, but it doesn’t all have to be at the point of death – it can be during your lifetime, so gifting while alive is part of that tax-planning exercise.”

While no one relishes thinking about death and what we’ll leave behind, it’s not a conversation we should shy away from, adds Tony. Your views might change as you move through life, so it’s a good idea to revisit the topic periodically and make sure your Will is up to date.

“We shouldn’t be afraid of facing what happens at the end,” he says. “We live a good life and so should think about how we can leave a good legacy, ensuring that others will benefit and are supported in a tax-efficient way.” 

If you’re thinking of philanthropic giving, call us today to find out how we can help.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Advice relating to a Will involves the referral to a service that is separate and distinct to those offered by St. James’s Place. Wills and trusts are not regulated by the Financial Conduct Authority.

SJP Approved 20/12/2022