Charity trustees need a clear vision for the strategic development of the organisation, income generation and fundraising strategies, as well as careful financial management. In addition to a deposit account, many larger charities hold reserves which are invested for future projects or to provide income. Occasionally, trustees may need to raise finance, such as from a social investment, to complete projects or plug short-term cashflow.
Larger charitable gifts are often directed into a charitable trust, which may include social or environmental investment as part of a wider tax-efficient philanthropic strategy. Social investment is an exciting new area, where investors seek to help improve life in a community as well as make an investment return.
Clearly, the ideal scenario with social investment is to match a philanthropic investor with a charity seeking funding. This is particularly important as charitable donations are under pressure, government funding has been cut and low interest rates have reduced investment returns. Accordingly, trustees are increasingly focused on investments with strict risk controls to preserve capital against inflation whilst generating higher returns than interest rates on cash. Some organisations, such as Dartmouth Caring have had to dip into their reserves in a bid to maintain vital front-line services as their workload has increased.
We advise not only charity trustees, but also individuals with regard to how best to make tax-efficient charitable donations. There are some valuable tax reliefs which are often under-used. Gift Aid enables a charity to reclaim 20% tax from a donation made by a taxpayer, so a charity receives a total of £25 for a gift of £20. Moreover, a 40% taxpayer can claim higher rate relief in their tax return, in this example £5. Payroll giving, where an employee gives money to charity out of gross pay, is much less popular, although carries similar tax benefits. Finally, gifts of UK property or shares can qualify for Income Tax and Capital Gains Tax relief. Many people choose to leave a charitable bequest in their will, which is free of Inheritance Tax. Furthermore, for estates worth over £325,000, where 10% of the estate is left to charity, there is a reduced Inheritance Tax rate of 36%.
I find working with charity trustees and philanthropic investors immensely rewarding and I look forward to helping charities across the region develop their good work.
[Matthew Clark, Western Morning News, 5 September 2013]