FT coverage of 2011 Million Pound Donors Report

As the first coverage of our new report on donors making gifts worth £1m or more is hidden behind a paywall, I’ll paste it here – until someone tells me I have to take it down!


Donors say: give us more of a break

By Elaine Moore

Financial Times, Saturday 10th December 2011
The government hopes to encourage greater charitable giving by introducing tax incentives for donors – but wealth managers are unsure whether lower tax bills will reverse a decline in philanthropy.

Between the 2009 and 2010 tax years, the number of large donations of more than £1m fell by 15 per cent, according to the latest Million Pound Donors report from Coutts.

This fall “mirrors the general sentiment in the economy and financial markets in the year 2009/10”, the private bank says – and matches a similar fall in the US.

As a result, UK charities are facing new challenges. Multimillion pound donations still largely go to the same causes: universities and arts institutions. That leaves charities with less money to compete for, as the value of large donations has also fallen from £1.5bn to £1.3bn in the space of a year. And their funding is running out sooner, as the time that individuals take to make a decision about giving has increased.

To boost the depressed level of donations, the government has confirmed plans to introduce a lower rate of inheritance tax (IHT) for charitable donors.

As of April 6 2012, a new 36 per cent rate of IHT – down from 40 per cent – will apply to those who leave at least 10 per cent of their estates to charity.

This tax rate will apply to the remainder of their estates – including jointly-owned property and some trust assets.
However, the complexity of implementing the rules could limit its impact, say tax advisers.
Law firm Boodle Hatfield points out that the new inheritance tax rule will apply to just 3 per cent of estates. Other advisers, including PwC, have therefore asked whether there is a simpler way to encourage the wealthiest members of society to increase their giving.

Some have called for the introduction of “charitable remainder trusts” in the UK – a form of tax relief available to US donors who promise to give away an asset to charity after death. So far, there has been no positive response from the government, but advisers believe the possibility remains open.

Philanthropy offices in Britain’s private banks agree that favourable tax treatment alone will not change the culture.
Research in the government’s philanthropy green paper, published last year, reveals the scale of the gap between levels of UK and US philanthropy. In the UK, individuals give on average 0.5 to 0.8 per cent of their investable assets to charity. In the US, investors give up to 3.5 per cent of their annual assets.

Coutts says this is partly due to the tradition of charitable donations, differing tax systems and the sophistication of US fundraising schemes.

Several high-profile individuals are now trying to promote philanthropy in the UK through a campaign titled Legacy 10.
Its aim is to persuade the wealthiest members of society to leave at least 10 per cent of their estates to charity.
Such “clubs” are already established in the US, where mega-donors – such as billionaire investor Warren Buffett – encourage their peers to donate half of their wealth in their lifetime. But the impact of the economic slowdown is expected to maintain downward pressure on giving.

“We think that, in the years directly after the financial crisis, donors were still honouring pledges they had made in the years preceding it,” says Beth Breeze from the Centre for Philanthropy, Humanitarianism and Social Justice at the University of Kent. “Now we see donors approaching things a little differently.”

In straitened times, charities are becoming more imaginative in their approach to fundraising.
Social impact bonds, already used by public institutions to raise money from private investors, are being utilised by the charity sector to gain revenue.

Scope, the disabilities charity, has entered capital markets with a £20m bond issue on the Luxembourg-based Euro MTF stock market, designed to pay for new retail and fundraising operations.

“The charity bond programme operates in a similar way to the corporate bond products,” says Geoff Burnand at Investing for Good, which set up the bond.

“Charities using the programme will be able to issue tranches of debt at varying amounts, maturity dates and coupon rates which gives them certainty over their cost of funds and away from dependencies on irregular donation flows.”

Government “matching” schemes have also proved successful. Support for higher education was boosted by a scheme that promised to match any contribution from an individual to a university.

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