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Changes to the tax system in recent years have created an ideal
opportunity to help donors maximise their giving. These changes include
the relaxation of limits on Gift Aid and the new concessions for
donating stocks, shares and property.
If you are a financial adviser or other professional helping clients
(whether individuals or companies) with their financial planning, we
hope this section will add value to the services and advice you offer
clients
who are
interested
in
charitable giving in an efficient, tax effective and rewarding way.
We also recommend you read the section for prospective
donors in
conjunction with this section.
Although a relatively new phenomenon, community foundations have
established themselves as a significant presence in the UK’s
not-for-profit world. The examples set by pioneer community foundations
and Community Foundation Network (CFN) have made the model popular,
so much so that the UK network now comprises over 60 community foundations
covering most regions of the country. Collectively, UK community foundations have approximately £90 million under management and together they distributed over £53 million in the financial year 2003-04. See finding
a community foundation for details
of your local foundation.
Here we explain various ways community foundations can help your
clients:
BENEFITS OF GIVING THROUGH COMMUNITY FOUNDATIONS
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Helping your clients give efficiently
Community foundations are an established and innovative way of giving. They are
registered charities that provide your clients a quick, easy and flexible alternative
to creating individual trusts or foundations that can prove very costly and
time consuming to administer. Depending on the size of the gift, a client can
set up a named fund with a community foundation. Only a simple agreement, which
can be amended later if so desired, is needed. The community foundation undertakes
all the day-to-day work involved in administering a grant-making programme,
from handling enquiries to making decisions, as well as fulfilling all the
accounting and reporting requirements. Community foundation staff give personalised
attention to donors and their preferences
Case study
See also establishing a fund at a community foundation |
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Helping your clients give locally
Community foundations are designed to help your clients engage in issues close
to their heart, while at the same
time providing
the tax benefits afforded a charity. While community foundations' area
of expertise is their locality, giving does not have to be restricted locally
and it can help a client plan their giving in other geographic areas. Community
foundations are managed by local people and make grants to local causes.
Your clients know that
their
money
will only go to support charities and voluntary groups whose work will
benefit local people. If they wish, they can make their giving
even more local by
focusing on the town or district where they live, or where their business
is based.
Community foundations offer a range of services such as site visits and
newsletters to donors who wish to be actively involved in giving
Case study
See types of funds |
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Helping your clients make an enduring gift
Community foundations are here to stay. By building a substantial,
multipurpose endowment fund for the community, community
foundations tackle today’s
needs, and can also meet the needs of future generations. If your client
is considering a legacy to the local community, giving
through a community foundation
ensures that their charitable wishes are honoured in perpetuity
Case study |
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Helping your clients give tax effectively
By making a gift through a community foundation during their lifetime, your clients
can obtain Gift Aid relief, and relief on gifts of shares and property.
See for
prospective donors which explains tax effective ways
to give through a community foundation, with links to useful
websites |
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Maximising your clients’ investment return
Community foundations give your clients the security of knowing their charitable ‘investment’ will
support their community for generations, as they take a long-term view of market
performance. Generally, donations are pooled into one portfolio and invested
prudently and wisely by experienced investment managers to give an annual income
to award in grants. Community foundations will also invest donations separately
if, for example, donors prefer ethical funds or already have a relationship with
a broker |
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Helping your clients give flexibly
Community foundations provide a tailor-made service for your
clients, in the form of a named fund, reflecting the
individual interests and circumstances
of each donor. This covers all aspects of the fund’s operation, from
the kinds of causes in which donors may have a special interest, to the extent
to which they want to be involved in the decision-making about grants to
be made from their fund
Case study |
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Helping your clients give wisely
All community foundations are governed by an active board of trustees from a
variety of backgrounds, with a wide range of skills and experience, and an
extensive knowledge of the local community and its needs. They have established
comprehensive grant-making policies and procedures, ensuring applications for
funds are dealt with efficiently and assessed carefully. All foundations make
use of professional advice, for example, in managing their investments |
ESTABLISHING
A FUND AT A COMMUNITY FOUNDATION
A fund within a community foundation works just like a charitable trust. It allows your clients (be they individuals or companies) to support issues and areas of their choosing, but saves them the trouble of appointing trustees, handling investments and dealing with correspondence.
A donor can establish their own named flowthrough or endowment fund:
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Flowthrough funding is when donations are spent within a designated period of time (normally one to two years) |
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Endowment funding creates a permanent capital base, the income from which is distributed for charitable purposes. Funds are normally set up through an agreed series of donations, often over several years, or by a gift in a will. Normally a minimum target is suggested; sufficient 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% on the market value of the fund |
Clients can choose to establish their own named endowment fund within
a community foundation. These are permanent capital funds, usually
with a minimum pledge of around £25,000-£30,000. Alternatively,
general donations can be pooled with other donations in an unnamed
or general endowment fund.
Case study
Many donors have found establishing a fund at a community foundation
a very straightforward and convenient alternative to setting up their
own charitable trust
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Setting up a charitable trust |
Establishing a fund through a community foundation |
| Set-up procedure and costs |
must register as a charity and apply to the Charity Commission |
simple agreement;
no start-up fees or costs |
| Investment, audit, accounting and tax |
must fulfil financial and administrative requirements or contract
or hire staff |
community foundation handles all financial and administrative
management, sorts out audit and reports to Charity Commission |
| Grant management |
must research and check activities and status of all recipient
organisations;
has ultimate say in all grant decisions
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community foundation verifies activities and status of all
potential grantees;
donors have access to grant-making know-how and services;donors can
be as involved as much or as little as they want in the grant-making process;
donors make recommendations to community foundation's Board on grants to
be made; |
| Privacy |
required to keep public records |
anonymity of donor can be maintained if wanted;
if the donor wishes, the community foundation can serve as a buffer between
donor and grant-seekers |
| Profile |
responsible for own profile |
community foundation can raise donor's profile in the community
by making grants in donors' name and featuring the donor in publications |
| Networking |
must find own networks and information sources |
community foundation networks like-minded donors;
connects donors to variety of groups and issues in the community |
For examples, go to local
giving
TYPES OF FUNDS
There are a number of options for setting up a fund. Your clients
can exercise choice about the beneficiaries of the fund they
establish and the degree of involvement they have in the fund:
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Beneficiaries
- Directed (or designated) funds. If your clients know which
charities they would like to support, they can instruct
that their nominated charity receives the
income from the fund each year. The community foundation will invest
their gift and ensure the income is always used for appropriate
purposes and
find the next most suitable charity if the client’s
chosen one ever goes out of operation. The community
foundation can offer advice on suitable recipients
if necessary
Case study
- Field of interest or themed funds. Your clients can specify
a time period, or restrict distribution to charities
that operate in a particular geographical
location within your community foundation’s area. Or they can nominate
a particular purpose or purposes for support, such as young people, the
elderly or the environment
Case study
- Unrestricted funds enable grants to be made to a wide
range of causes. In practice, grant-making will follow the
community foundation’s
overall priorities. This arrangement gives the foundation scope to adapt
giving to meet the area’s
changing needs over time
Case study
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Involvement
- Discretionary funds enable the community
foundation to make grants without prior reference to the
donor, either
generally
or within the limits of a specified field of interest.
The donor will receive details of all grants made by
way of regular
reports at agreed intervals
Case study
- Advised funds enable donors to become more involved in
grant-making decisions if they wish. For example, donors
might wish to receive
information about proposed grants before they are made,
select projects to be supported from a shortlist provided
by the
community foundation, or nominate possible grant recipients
from time to
time. They may also like to meet with community foundation
staff to discuss possible areas for future grant-making
Case study
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TAX EFFECTIVE WAYS TO GIVE
There are a number of tax effective ways for your clients to give
through a community foundation explained in more detail in for
prospective donors. They include:
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Legacies
A legacy through a community foundation is a way your clients can leave something
of real and lasting value to help their local community, after providing
for family and friends. A gift through a community foundation will be exempt
from inheritance tax. Alternatively, if your client has received a legacy
in the last two years that they would like to donate to their local community
foundation, a Deed of Variation in favour of the community foundation will
avoid paying inheritance tax
Case study |
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Shares and securities
Since April 2000, tax incentives have made share giving 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.
Furthermore, no capital gains tax will apply
Case study |
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Property
Tax relief (both income and capital gains) is possible for gifts of land and
property through a community foundation. As with share giving, if they choose
to give this way, your clients are entitled to claim relief for the full market
value of the property donated |
FUTURE
TRENDS - PLANNED GIVING
Planned giving is part of estate planning for a donor. It goes
beyond making provision for legacies to encompass all forms of
tax effective
giving including the promotion of new specifically designed financial
products:
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Donations are legally provided for in the lifetime
of the donor |
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The community foundation has an interest in the
donation but the full benefit is usually deferred until a point
in the future (usually the donor’s death) specified in
a legal document between the organisation and the donor |
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The donor may receive tax benefits as a result
of their gift provision |
In the US, a flourishing partnership between the financial services
sector and charities has developed. Supported by a favourable tax
regime, there is a range of sophisticated products that provide a
donation for the charity, tax breaks for the donor and increased
custom for the financial adviser. These 'planned giving' products
are a significant source of income for all US charities and community
foundations.
In the UK, charity financial products are embryonic compared to
the US. But the financial services sector and charities are increasingly
working together. Recent research by The
Giving Campaign explores
the feasibility of developing planned giving products in this country.
NEXT STEPS
Because the content of this section is of a general
nature and because your clients' criteria for giving are likely to
differ, community
foundations prefer to work in consultation with prospective donors
and their advisers. We therefore recommend that you contact
us,
or your local
community foundation, if there are specific issues
you or your clients would like to discuss.
FURTHER INFORMATION
Inland Revenue has produced a series of booklets for
professional advisers about giving to charity. All are available
at http://www.inlandrevenue.gov.uk/charities/ and
include:
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IR64 Giving to charity by businesses |
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IR65 Giving to charity by individuals |
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IR178 Giving shares and securities to charity |
See also the websites for philanthropic giving in the UK in links
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