US tax reform, meanwhile, has made substantial changes to the ability of taxpayers to claim itemised deductions. To ensure an effective US tax deduction, individuals may wish to group multiple year contributions and make in one year. A DAF or private foundation could be a useful vehicle here since it allows donations to be grouped but money received by the end charity disbursed at more regular intervals.
Second, the use of offshore income and gains can bring added benefits when combined with giving. Current and former remittance basis taxpayers can potentially use foreign income and gains to obtain both UK and US tax relief without creating a taxable remittance. To do so, the donation must be paid directly to the offshore bank account of the charity concerned. If the charity does not have an offshore bank account, again a donor-advised fund could be used.
Third, both UK and US rules provide tax income tax relief for gifts of certain non-cash assets, including listed securities. Where the asset has been held for more than one year it is also possible to avoid having to recognise a taxable gain on an appreciation under both UK and US rules (subject to the donation being to a dual qualified charity).
Charitable bequests in wills require careful planning
Tax savings from charitable bequests can be substantial. Donations of 10% or greater of the net estate reduce the UK inheritance tax rate on remaining taxable assets by 4% to give an overall effective saving that can exceed 40%.
Charitable bequests in wills must be carefully planned to benefit from the available tax reliefs, however:
- Individuals deemed to be domiciled in the UK must ensure charitable bequests are to UK/EU/EEA charities, which qualify for exemption from UK inheritance tax (the rules here have not yet changed following Brexit).
- For the US-domiciled, relief from US estate tax would still be expected, provided the EU charity is not overtly political.
- Taxpayers can, again, consider making their bequest to a dual qualified DAF to avoid concerns as to whether the charity will qualify for US tax relief.
- Non-US domiciles can also obtain relief by the direct bequest of US-based assets.
- DAFs can also be an option for individuals who have ceased UK residence but are still regarded as UK domiciled. They must be careful if making substantial donations to non-UK charities and should look to use dual-qualified charities (including DAFs) to ensure there is no upfront IHT charge on the donation. Non-resident taxpayers can choose whether to elect for Gift Aid or not, depending on their UK circumstances.
To ensure the most effective outcomes, donors should seek advice, particularly for large charitable gifts.