Legal complexity deterring wealthy from leaving money to charity, reveals new research

Sep 1

3 min read

Complex red tape is deterring high-net-worth (HNW) families from leaving money to charities, despite increasing desire to do so, according to new research from wealth managers, Rathbones.

A survey of HNW families with average wealth exceeding £3m found that more than two in five (42 per cent) say legal and financial complexity is the main challenge preventing them from including charitable giving in their estate plans. Almost as many (39 per cent) cite a lack of knowledge about non-profit options, while over a quarter (26 per cent) admit they are unsure where to begin.

When giving to charity in the UK, HNW individuals encounter issues such as tax considerations; correctly structuring donations and foundations; and ensuring governance and compliance adhere to charity law, as well as balancing philanthropic goals with family inheritance and legacy planning.

These hurdles could be thwarting strong philanthropic intentions, according to the study. Despite the barriers, over half (53 per cent) of the wealthy surveyed have increased charitable donations in the past two years, with two-thirds (66 per cent) expecting to give more in the next two.

When it comes to wills, nearly two-thirds (62 per cent) have included a charitable gift – averaging £233,000 – while a quarter (24 per cent) do not currently have a will, though 83 per cent of these respondents intend to write one within three years and include a charitable gift.

Tax benefits not understood

Leaving a proportion of an estate to charity is not only a way to create a lasting legacy – it can also be highly tax-efficient, Rathbones commented, explaining that if at least 10 per cent of the net estate is donated, the inheritance tax (IHT) rate on the remainder can be reduced from 40 per cent to 36 per cent.

However, 19 per cent of wealthy families are unaware that charitable donations can be incorporated into estate planning to reduce IHT, rising to 32 per cent who do not know about the specific 10 per cent threshold. More than eight in 10 (84 per cent) would consider leaving 10 per cent of their estate to charity, once aware of the benefit:

"Estate planning is no longer just about passing on wealth – it’s about doing so with purpose, but it is not always obvious which path to take,” said Rebecca Williams, financial planner at Rathbones:

“More families are recognising that with the right advice, they can reduce their tax exposure, protect their loved ones and make a meaningful difference to the causes they care about. The challenge is that too many still feel uncertain about how to start. That’s where professional guidance is essential – to turn good intentions into effective, lasting legacies."

Increasing role for professional advisers

In an effort to overcome the complex challenges of philanthropy, wealthy families are signalling a growing appetite for professional guidance in integrating giving into estate planning.

Seven in 10 (70 per cent) expect to speak to their financial adviser about charitable giving in the next five years, compared to just over half (51 per cent) who have already done so. Similar trends are seen with lawyers (48 per cent plan to, with 22 per cent having already done so) and accountants (21 per cent plan to and 14 per cent already have done so).

Despite this, one in seven (14 per cent) say none of their current advisers have raised charitable giving during estate-planning discussions – and of these, 57 per cent say they would welcome such advice.

Wealthy individuals are also planning to leave non-cash assets to charity – such as property, investments or valuable personal items – which are exempt from IHT and excluded from the estate valuation. One in 10 (10 per cent) have already planned such gifts, with a further 82 per cent likely to do so.

Gemma Gooch, head of charities distribution at Rathbones, said: "The charity sector is facing a perfect storm of rising demand for services, economic uncertainty and intense competition for donations. Legacy giving is an increasingly vital lifeline, yet our research shows that many HNW individuals want to give but are held back by complexity and a lack of guidance. By making it easier for donors to integrate philanthropy into their estate planning, we can help secure long-term funding for the causes that sustain our communities."

To help overcome the common barriers to charitable giving, Rathbones is launching DAF (Donor Advised Funds), a flexible, tax-efficient solution that enables clients to donate and to support the causes they care about, both now and in the future.

Donations to DAF are eligible for immediate tax relief and can be invested to grow tax-free. Family members can also be nominated as successor advisers to continue the donor’s legacy.

www.rathbones.com