A guide to philanthropy and charitable giving

Philanthropy comes in many forms, from long-term support to single, one off donations. Often described as society’s “risk capital,” it’s typically defined as the desire to improve the welfare of others. This is most often through generous donation and charitable contributions to worthy causes.¹ The word philanthropy itself has roots tracing back to the Greek playwright Aeschylus. He emphasised the importance of kindness and the public good. But its impact goes far beyond that simple definition. It has far-reaching positive effects for communities and the world at large.

Modern philanthropy involves a variety of impactful ways to give. This includes payroll giving schemes facilitated by an employer, allowing donors to pay directly from their salary. This often comes with income tax relief benefits during the tax year. This approach encourages ongoing support and helps non profits plan their resources more effectively. Whether through cash, grants, or volunteering, philanthropy is a powerful act of generosity that can promote social change and address pressing social issues.

The most generous philanthropists in the UK donated £4.982 billion to charitable causes in the past year, according to the Sunday Times Giving List.² Influential philanthropists like Andrew Carnegie and George Peabody set historic examples of how strategic giving can have a greater impact on society.³ This has inspired many others to follow their lead.

Donors today have a wide focus when choosing causes. They often seek to support a charitable mission that aligns with their values and maximises the use of available resources. They may recommend grants to specific projects or organisations, ensuring their contributions address urgent needs and create sustainable outcomes. The subject of philanthropy continues to evolve with advances in technology. This enables more transparent and efficient ways to connect donors with good causes on a national and global scale.

Benefits of charitable giving

The benefits of charitable giving go beyond the immediate good done for beneficiaries. On a personal level, contributing to causes that align with your values can create a sense of fulfilment, purpose, and connection to the community. Every person who practices philanthropy understands that giving money is not just a transaction. It's a meaningful part of life that fosters generosity and social responsibility. For businesses, philanthropy can enhance corporate reputation, improve employee engagement, and strengthen relationships with customers and stakeholders.

From a societal perspective, charitable donations can:

• Fund vital services
• Drive innovation in tackling social problems
• Fill gaps where public funding is insufficient.⁴
• Improve personal well-being and reduce stress.⁵
• Build stronger personal networks.⁶

Forms of philanthropy

Different forms of philanthropy include:⁷

Impact philanthropy: aims to create the most significant possible impact and reach the widest number of people through carefully planned actions.

Strategic philanthropy: involves supporting the causes that matter the most and deciding on the best way to help. This could be donating to a single charity annually or building a portfolio of organisations to donate to.

Venture philanthropy: venture capital principles and services are applied to the social economy. This kind of social investment may include long-term investment approaches, hands-on support, and board management.

Family philanthropy: giving as a family over the long term. This helps establish a culture of giving for generations and passes on positive attitudes towards money and helping others. It’s a powerful form of philanthropy, as it allows families to build and achieve lasting impact.

Charitable planning and strategic philanthropy

Effective charitable giving often begins with careful planning.⁸

Identifying priorities: deciding which causes or communities matter most.

Choosing giving methods: direct donations, setting up charitable trusts, donor-advised funds, or leaving legacies in wills.

Timing donations: giving during your lifetime versus bequests after death.

Evaluating organisations: ensuring that charities are reputable, transparent, and effective in using funds.

Professional advisers, such as financial planners and solicitors, can help structure giving in tax-efficient ways while ensuring your intentions are honoured.

Tax benefits, incentives and gift aid

The government offers tax incentives to encourage charitable giving.⁹ This recognises such donations as benefitting society at large.

Gift Aid allows charities to reclaim the basic rate of income tax on donations from UK taxpayers. This means that for every £1 donated, the charity can claim an additional 25p from HM Revenue and Customs at no extra cost to the donor. Higher-rate taxpayers can also claim back the difference between the basic and higher rate on their self-assessment tax return. This effectively reduces the net cost of their donation.⁷

Inheritance Tax (IHT) relief is available when gifts are made to charities through a will. Charitable gifts are generally exempt from IHT, meaning they are deducted from the value of the estate before tax is calculated. Additionally, if 10% or more of the net estate is left to charity, the IHT rate on some of the assets can be reduced from 40% to 36%. This creates a significant incentive for including charitable legacies in estate planning.⁸

In summary

Philanthropy and charitable giving can bring tremendous benefits. It enhances community well-being, supports important causes, and provides personal satisfaction. With thoughtful charitable planning and by making use of available tax incentives, you can maximise the impact of your contributions.

Sources

1. cafonline.org/what-is-philanthropy 
2. fundraising.co.uk/sir-chris-hohn-tops-sunday-times-giving-list-after-giving-1-4-billion 
3. nptuk.org/charitable-giving-principles 
4. givingworks.org.uk/how-charitable-foundations-enable-businesses-and-philanthropists 
5. mentalhealth.org.uk/kindness-matters-guide 
6. cafonline.org/developing-a-giving-strategy 
7. gov.uk/donating-land-property-or-shares 
8. gov.uk/gift-aid 
9. gov.uk/inheritance-tax