Tax efficient giving lawyers

Depending on location, charitable donations are generally either tax-exempt or taxed at a lower rate than other gifts or legacies. Preferential tax rates are also likely to apply to the income and gains of charitable foundations themselves.

In nearly all jurisdictions, favorable tax treatments are only available to structures (or donations to structures) established locally.  Until recently, for example, the UK only granted tax reliefs to charities that were also established there.  While the same situation applied in most other European countries, recent judgments in the European Court of Justice have seen some relaxation, though Europe is a long way off from a borderless region for charitable giving.  The US and Hong Kong similarly limit their tax reliefs to donations given to ‘domestic’ charities, with some limited exceptions.

‘Territoriality’ – or the fact that a gift to a charity overseas can create a change to your tax situation – can be a motivation in setting up a charitable foundation in the jurisdiction where the main donors are taxable.  Foundations can be funded tax-efficiently, and may be able to make grants to foreign entities, whereas a donor’s direct charitable donations to such entities would not be eligible for tax benefits.

Where individuals are taxable in more than one jurisdiction, even more onerous conditions apply.  US citizens earning income outside the US are particularly exposed.  Their income will usually be taxable in the US, with credit given for tax paid elsewhere.  But if they give to a US foundation, they are unlikely to get tax relief in the other jurisdiction (even though they must still pay tax there).