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Community foundations work with many kinds of donors – individuals, businesses, charitable trusts, public bodies and government agencies - as well as with professional advisers.
They help you give to your local community in an effective, easy, flexible and rewarding way. Using the specialist knowledge of a community foundation means you, as a donor, can be involved in your local community and its particular concerns. You can be part of change in an effective and lasting way. Companies can demonstrate effective corporate social responsibility by giving through a community foundation.
Here we take you through the nuts and bolts of giving through community foundations:
We recommend that your professional financial adviser reads the professional advisers section.
BENEFITS OF GIVING THROUGH A COMMUNITY FOUNDATION
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Local giving
In our communities, many needs are hidden from view, and many less well-known groups carry out vital work. It’s hard to track all these down and judge which are the most effective. Community foundations keep in touch with community needs and groups tackling them. They set clear priorities for grant-making to make sure these needs are targeted. Their knowledge means gifts made through a community foundation go to effective organisations with the maximum impact on the community
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Joined up giving
Community foundations put donors in touch with one another; put donors in touch with grant recipients; and links groups working on similar needs together.
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Long lasting giving
Community foundations are here to stay. By building a substantial, multipurpose endowment fund, community foundations tackle today’s priorities and can also meet the needs of future generations. If you are thinking of leaving a gift to your local community, giving through a community foundation means your charitable wishes are honoured for generations to come
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Accountable giving
All community foundations are governed by an active board of trustees who know their community well. Community foundations have clear grant-making policies, to make sure requests for funds are dealt with efficiently and assessed carefully. Some community foundations arrange site visits and donor newsletters if you wish to be actively involved in giving
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Simple and flexible giving
A fund with a community foundation is much simpler to set up than a family trust or private foundation. You can establish a fund with a simple agreement in just one meeting. You can support a specific charity or recommend a cause or area where you wish your gifts to go. Or you can simply give to the general benefit of the community. Even the smallest donation is welcome. All funds are professionally managed.
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Convenient giving
Community foundations are efficient because they pool funds for investment. Larger donors have all the benefits of their own ‘trust’ without the burden of management. The foundation takes care of legal and tax requirements, as well as grant administration – cheque writing, tracking recipients and keeping records
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ESTABLISHING A FUND
A fund within a community foundation works just like a charitable trust. It means you can support issues and areas of your choosing without the trouble of appointing trustees, handling investments and dealing with correspondence.
Funds are normally set up through an agreed series of donations, often over several years, or by gift in a will. Normally a minimum target is suggested; enough to be invested within the community foundation’s portfolio and credited quarterly. Annual costs for investment management, grant-making and administration are low, between 1%-2% of the market value of the fund.
Case study
TYPES OF FUNDS
When a community foundation allocates the income from your fund, it will do so in line with your personal wishes. You may already know which causes you wish to benefit from your endowment. If not, the foundation can advise you.
There are several options for setting up a fund or you can ‘mix and match’ for maximum impact:
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You may recommend specific groups to receive all or part of the available sum |
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You can specify a time period |
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You may restrict your recommendations to groups in a particular neighbourhood |
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You may choose a favourite cause for support, such as young people, community safety or the environment. Community foundations use their own networks and advisers to find projects or organisations which meet your interests. Suitable projects are assessed and approved before you review them |
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If you prefer, the community foundation will allocate grants on your behalf and report back to you |
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The grant will be paid out in the name of your fund, or if you prefer, you may choose to remain anonymous |
TAX EFFECTIVE GIVING
To boost giving to charity, in April 2000 the government introduced a range of new measures for UK taxpayers, making it simpler and more tax effective. Further measures were introduced in April 2002. Providing you are a UK taxpayer, you can hugely boost your charitable donations simply by giving in a tax effective way. The taxation rules applying to community foundations are the same as those that apply to all charities. Almost 70% of the population makes a regular donation to charity but few do so tax-effectively.
There are five main ways to give tax effectively:
GIFT AID FOR INDIVIDUALS AND COMPANIES
Using Gift Aid means that for every pound donated, the community foundation gets an extra 28% from the Inland Revenue. Gift Aid covers any donation from an individual UK taxpayer, so long as a simple Gift Aid declaration is completed. Higher rate taxpayers can reclaim the difference between standard and higher rate tax in their annual tax return – and this applies to donations made in the previous tax year and the current year. All you need to do is complete a Gift Aid form and send it off to the community foundation.
Basic rate taxpayer
| Donation to community foundation |
£100 |
| Amount reclaimed by community foundation |
£28 |
| Total amount received by community foundation |
£128 |
| Cost to donor to give £128 to community foundation |
£100 |
Higher rate taxpayer
| Donation to community foundation |
£100 |
| Amount reclaimed by community foundation |
£28 |
| Total amount received by community foundation |
£128 |
| Amount claimed by donor in tax return |
£23 |
| Cost to donor to give £128 to community foundation |
£77 |
Sample declaration (used together with name and address)
I want (insert name of community foundation) to Gift Aid all donations I’ve made since 6 April 2000 and all future donations until I notify you otherwise. I confirm that the amount I have paid in income tax or capital gains tax in the tax year will at least equal the amount the community foundation will claim |
Companies simply pay the community foundation the full donation and claim full tax relief when calculating their profits for corporation tax.
SHARE GIVING
Giving shares and securities to charity has long been a useful way of unlocking capital and passing it on to good causes. Since April 2000, giving made in this way has become even more attractive: individuals who give shares to charity are entitled to claim back full tax relief against the value of those shares. So, a gift of shares worth £1,000 will only cost a higher rate taxpayer £600, or £780 for lower rate taxpayers. Please note, while no capital gains tax will apply, where shares have fallen in value, the loss cannot be used to offset a CGT liability. There are many reasons why giving shares might appeal to you. You might hold windfall shares that are make little difference to you, but could make a big difference to a hard-pressed local cause. Or you may have inherited some shares which generate more paperwork than income. These could be turned into something of real value to others by donating these shares to a community foundation.
Case study
Whether the donor gives shares or gives cash through Gift Aid will depend on their individual tax situation and whether they want the community foundation or themselves to get the greatest benefit. We suggest donors approach the community foundation they want to give to, as many community foundations will arrange the transaction or offer specialist advice.
In all cases you need to show that the foundation is prepared to accept the gift.
GIFTS OF LAND/ PROPERTY
Tax relief is possible for gifts of land and property and donors receive full tax relief from income and capital gains tax. As with share giving, you are entitled to claim relief for the full market value of the property donated.
LEGACIES
Community foundation legacies are donations made as part of a will. It is a way you can leave something to your local area that will benefit people for generations to come. Charitable legacies are exempt from inheritance tax, and this reduces the total amount of tax paid on a donors’ estate. Depending on the size of the legacy, a charitable fund can be set up through a community foundation in your memory, which takes into account your charitable interests. Legacies can be set up through a solicitor or a community foundation
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PAYROLL GIVING
Setting up a payroll giving scheme at a company is straightforward and tax-efficient for employees, who can authorise their employer to deduct charitable donations from their pay before calculating Pay As You Earn tax. This way the employee automatically gets tax relief on the value of donations at his or her top rate of tax. There is no limit on the amount that can be given under the scheme tax free up to an employee’s maximum taxable earnings.
For further information, see Payroll Giving Grants scheme.
USA TAXPAYERS
Charities Aid Foundation has devised an effective means whereby US taxpayers who are currently UK residents and making donations from UK earnings may be able to claim tax relief in the UK and receive tax credit for the donation on their US earnings. More information is available through the Southampton Row Trust, telephone +44 (0) 1732 520 150 (no website).
Further information on tax effective giving is available from:
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