Easing philanthropic misgivings: unlocking greater charitable giving

Recent reports published in August 2024 by charities ‘Pro Bono Economics’ and ‘Remember a Charity’ highlight the untapped potential of philanthropic giving from high-net-worth individuals in the UK. Eleanor Sepanski writes.

These reports assert that the wealthiest in society can and want to do more philanthropy, and explores the blockers to giving. These reports find that one of the keys to unlocking greater giving is for financial and wealth advisers to offer better philanthropic advice as part of their mainstream offering. This can help to support a UK culture of giving and may lead to a deeper and more trusted client-adviser dynamic with both individual and family clients.

These reports come at a time when philanthropy is needed more than ever. In the UK, charities and the voluntary sector play a key role in the delivery of essential public services, building communities, informing policy, and raising funds for good causes. The current pressure on public finances greatly affects this sector, epitomised by the Chancellor recently referring to a fiscal ‘black hole’ in the economy.

An additional warning of the times is the UK falling back to its lowest ranking in the Charities Aid Foundation (CAF) World Giving Index 2024. CAF reports that the UK has trended downwards over the past decade and has particularly struggled to regain pre-COVID-19 levels of generosity. Having only once fallen out of the top 10 before the pandemic, the UK currently sits 22nd in the world.

The report from Remember A Charity stresses the need for increased education and engagement across the entire private wealth adviser community as a way to achieve greater philanthropic contributions from the wealthiest in society. The report states that, with the exception of solicitors, it is not commonplace for wealth advisers outside the specialist philanthropy space to routinely engage in ‘values-led’ conversations with their clients about giving and philanthropy. However, such advisers recognise that these topics are important to their clients and the overall client relationship.

There are numerous ways to engage in philanthropy, not only by giving money but by giving time, establishing a donor-advised fund/foundation, or by making social/impact investments. Some people wish to give under their Wills, whilst others find it more rewarding to gift during their lifetime to see the benefits themselves. Philanthropy can be completely personal or take the form of family philanthropy by way of establishing a culture of giving for generations, perhaps as a component of an ongoing family business.

Individuals and families can benefit greatly from a ‘philanthropic inheritance’, with discussions about this informing the natural conversation about succession, inheritance and legacy.

Philanthropy can (and arguably should) form an important part of wealth and estate planning. Wealth advisers can play a crucial role in helping to navigate these issues, signposting further advice, and putting the right structures in place.

Philanthropy should be structured appropriately to achieve clients’ aims in a way that reflects how much time and involvement they and others are able to give. For a client’s wider estate planning, giving to charity by Will or during lifetime is endorsed by HMRC through various tax benefits, with some of these tax incentives benefiting heirs too.

For example, if a UK client increases their charitable gift from 4% of their estate to 10%, their heirs would secure a lower inheritance tax rate of 36% rather than 40%. Philanthropic estate planning can be a fantastic way of leaving a meaningful and beneficial legacy.

It is sometimes said that the UK can learn more about philanthropy from countries such as the US. The US offers clients financial advice on philanthropy as a matter of course, and Pro Bono Economics has called for the UK Financial Conduct Authority (FCA) to make philanthropy advice training mandatory for financial advisers. That said, despite the US ranking above the UK in the CAF World Giving Index, CAF itself has said that UK should not aspire to a US model of philanthropy and tax incentives, as they are not replicable. Instead, the UK should tap into its own rich history of charitable giving, whilst raising awareness and deepening conversations around philanthropy as a whole. It has also called for the UK to set out a ‘ National Philanthropy Strategy’, similar to those recently introduced in the Republic of Ireland and Australia.

This article was first published on Private Banker International on 1 October 2024.