Tax efficient giving

Obtaining tax relief is never the motivation for giving. However most donors do want to give tax efficiently so that they can maximise the amount available to give. It's also often overlooked that some cross-border gifts can even create a tax liability, despite the charitable nature of the gift.

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, favourable 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).

The solution is for the US and/or UK or Hong Kong taxpayer to ensure that the foundation is ‘dual-qualified’ for tax purposes in both jurisdictions. Although this is just one hypothetical situation, it clearly illustrates why it is so important to consider who will be funding a foundation before setting one up.

Donors with assets in more than one jurisdiction, and international families with potential donors in more than one jurisdiction, may be able to take advantage of the limited exceptions to ‘territoriality’, or an international group structure may be needed to ensure all interested family members can efficiently fund the family philanthropy.

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2021 Ranked in Chambers UK - Charities (Band 2)

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Recognized for non-profit/charities law, tax law and trusts and estates law in San Diego by Best Lawyers 2016 and 2017

Ranked Band 2 in Chambers 2017 for Charities

Ranked Tier 2 in Legal 500 2016 for charities and not-for-profit

Ranked in Band 1 for private client for the last 16 years

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How the team can help


Managing unexpected wealth

A married couple who held shares in a US company came to us after coming into considerable wealth when it was sold. We helped them to handle the complex tax obligation arising from the windfall and advised on how to protect their privacy. We also discussed routes to philanthropic giving, an area that they were keen to explore and one in which Withers has considerable experience.

US / UK interests

We assisted a family in efficient structuring of the family's business activities in the US and the UK as well as their family charitable foundation. The unique nature of our US team based in London enabled us to provide both the UK and US advice on the structuring and charitable foundation under one roof.

Worldwide philanthropic activities

We advised a Middle Eastern family who were actively engaged in philanthropic activities around the world. We created a Jersey based charitable foundation to focus the families's activities.

Non-grantor charitable lead annuity trust

Assisted an ultra high net worth individual with his charitable endeavors and continued support of research at an elite education institution.  We worked with the individual to establish a non-grantor charitable lead annuity trust, a technique that also incorporated beneficial tax planning for our client.

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