23 March 2018
Thanksgiving is nearly upon us and the many American residents outside the US will be carving up their turkeys to share a meal with family and friends. While it is certainly a time to give thanks, our thoughts naturally turn to what else we can give, be those gifts to charitable causes or to our loved ones. Of course, any giving must be done by 31 December in order to take advantage of relevant US tax reliefs and exclusions.
Americans in the UK are spoilt for choice when it comes to charitable giving. A number of large public charities, notably US universities, but also some UK charities, offer dual-qualified and offshore gifting solutions to those who need it. But for those Americans who would like to secure the US charitable income tax deduction for 2017 but are not yet sure which causes or organisations they would like to support, establishing a private foundation or donor-advised fund is the best solution. Private foundations are still great vehicles for donors who want to maintain control over the investments and grants made, and also provide a lasting legacy for family philanthropy. Donor-advised funds are much easier and quicker to establish (especially for donors who wait until December) and the maintenance burden is borne by the sponsoring organisation. Private foundations and donor-advised funds are also available in the dual-qualified variety, which means the choice between the two can come down to pure donor preference.
With the expiration of nonqualified deferred compensation forcing hedge fund principals and private equity managers to take in previously deferred compensation as ordinary income by the end of this year, some donors will find that a combination of private foundation and donor-advised fund funding can maximise available reliefs. For those donors who are not domiciled or deemed domiciled in the UK and do not need UK tax relief, charitable remainder trusts and charitable lead trusts are also on the table.
In addition to charitable giving, Americans have $14,000 to give to as many recipients as they want before the end of the year. This will increase to $15,000 for 2018. UK residents do need to be mindful of non-cash gifts standing at a gain, which can trigger a capital gains tax charge. Non-American spouses can receive gifts up to $149,000 this year, increasing to $152,000 next year – great for gifting a portion of a UK home, for instance. For the very generous, the combined US federal estate and gift tax exclusion currently stands at $5.49 million and will jump to $5.6 million in 2018. Even if the President succeeds in repealing the US federal estate tax, there are no proposals to repeal the gift tax, and gifting income-producing assets still offers a tax benefit. At the very least it would make one heck of a stocking stuffer!