In this article we discuss The Giving Pledge, which invites wealthy people to publicly commit to giving away the majority of their wealth to philanthropy.
Founded in 2010 by a group of ultra-wealthy individuals (including Bill and Melinda Gates and Warren Buffet), the Giving Pledge invites other wealthy people to publicly commit to giving away the majority of their wealth to philanthropy. Initially a purely American group, since 2013 there have been signatories from the UK, Germany, India, and Russia to name a few. But what should an aspiring British philanthropist be thinking about if they want to give away the majority of their wealth, whether through their own charitable foundation or simple donations?
What should you give away?
When giving to charity in the UK, cash gifts are generally the simplest approach. However, many wealthy entrepreneurs and business people hold large portions of their wealth in business assets like shares. Although more complicated than cash giving, there are potential tax advantages to giving away business assets. If say a certain asset is likely to significantly increase in value, moving this out of your estate and into the hands of a charity will prevent this capital growth increasing the value of your estate.
When should you give away assets?
Many signatories to the Giving Pledge wish to give away most of their assets during their lifetime. This gives them the opportunity to have some oversight and see the fruits of their donations. However, others might decide to hold onto their assets during their lifetime and leave assets to charity on death. Any charitable giving on death will still be tax free, and if at least 10% of an estate is given to charity it can reduce the rate of inheritance tax on the rest of the estate.
Who should you give to?
In the UK, gifts to a domestic charity will benefit from a 100% relief from inheritance tax. However, gifts to foreign charities may not be treated the same way, so care needs to be taken over exactly who should receive donations. While the case of Routier v HMRC opened the door to the relief being available on gifts to foreign charities, this was based on an interpretation of EU law and so the current position remains unclear. Certainly it seems likely that HMRC would seek to tax donations to foreign charities, so unless there is a specific desire to test this in the courts it may be simpler to select domestic charities (or domestic branches of international charities) to receive philanthropy.
What about the rest of your family?
If someone’s ambition is to give away large portions of their wealth to charity before they die, it may be sensible to discuss this with their family and anyone who might otherwise expect to inherit. It may be that lifetime giving to potential heirs is a preferable option to leaving assets on death, and there are varied possible approaches (see our articles on ‘normal expenditure out of income’ or ‘how to efficiently gift business assets’ for example). Whether this is the plan or if potential heirs are simply to fend for themselves, it is likely preferable to discuss this sooner rather than later to minimise nasty surprises and disruption.