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Individual philanthropy

A GUIDE TO DONOR ADVISED FUNDS

Discover more about donor advised funds and how they can help you have a greater impact through your giving.

Donor Advised Funds

Donor advised funds (DAFs) are the UK’s fastest-growing philanthropic giving vehicles, enabling donors to give in a flexible and tax-effective way.

How a donor advised fund differs from a standalone charitable foundation

A donor advised fund or DAF is a wrapper or a vehicle for charitable giving. It is an alternative to a someone having their own (or family) standalone charitable foundation.

DAFs offer several advantages over charitable foundations, namely cost savings, tax-efficiency, flexibility, and ease of administrative, fiduciary, and reporting requirements.

Instead of registering a charitable foundation with the Charity Commission, you can set up a fund with a DAF provider like our CAF Charitable Trust. This gives you everything you get from a standalone foundation but it comes under the provider’s umbrella. It takes out a lot of the hassle associated with running your own foundation.

This allows you to focus on the meaningful side of giving, from working with the charities and talking to beneficiaries to finding out about the impact that their giving is having.

What can you do with a donor advised fund?

We say gift, grow, grant.

Gift

You can gift all sorts of assets into a donor advised fund. DAFs can be funded with a variety of assets including cash, shares, non-cash assets and third party entities which you are connected to. Donations of shares have been quite frequent over the past few years, which is largely a reflection of stock market performance. The tax incentives associated with a reduction in capital gains taxes makes this option increasingly popular with donors. And not all charities are able to facilitate share gifts, however a DAF provider is set up with the functionality to do so. 

In most instances, individuals make an initial gift into their DAF, followed by further planned gifts as and when circumstances allow. While the gifts are irrevocable and become the assets of the DAF provider, the individual will advise on where they would like the money to go.

Grow

You can invest the assets in a DAF for the long-term. You can bring in your investment advisor or financial planner to help design an investment strategy that works for your philanthropic plans.

Diversification can allow for a mixture of investment into growth funds or stocks, social impact repayable finance, or environmental, social and governance (ESG) and ethical investing, multi-year grants and one time gifts. This portfolio balance can allow for the original invested amount to grow and, in the case of social finance, for the impact to be multiplied with loans that are repaid and re-loaned on several occasions. Having this flexibility and personalisation makes DAF vehicles deeply satisfying. It allows trust holders to enjoy their giving while the charitable institution absorbs the responsibilities of account management.

Grant

The due diligence to confirm the charitable purpose of grants made by a donor sits with the DAF provider, or their delegated authorities. Once that has been completed, the grant is then made by the DAF on behalf of the donor.

At CAF we can give to charitable causes anywhere around the world. That's not an easy thing to do as HMRC has quite a lot of rules about using UK charitable funds to support charitable causes outside the UK. We deal with those. We can fund programmes and initiatives, multi-year donations and put in place legal agreements where required to underpin some of the more complex forms of support that you may wish to provide.

We also offer advisory services that can help you realise greater impact through your giving. These can include strategic planning, charity recommendations, and grant management. 

Tax relief available with donor advised funds

If you are a UK tax payer, when you make a cash gift to your Donor Advised Fund, Gift Aid may be applicable (depending on your personal tax circumstances).

In addition Donors who pay tax above the basic rate can reclaim the difference between the rate they pay and basic rate of tax via their personal tax returns to unlock further potential tax savings.  

Example for a gift of £100,000 where the donor pays tax at higher rate of 45%:

  • You donate £100,000 to charity
  • The DAF can claim Gift Aid on the donation at 25% so the charity ultimately receives £125,000
  • You can reclaim £31,250 via your personal tax return (i.e. the difference in tax rates(45% - 20%) x gross donation of £125,000).*

In order to qualify you have to be a UK taxpayer and subject to an income or Capital Gains Tax liability equating to the same amount.

Involve the family in a donor advised fund

Some donor advised funds (such as ours) allow you to involve the family and set it up so that your giving aspirations can last beyond your lifetime.

A family foundation can be hugely rewarding, bonding and valuable. It can give members a chance to give beyond what may be possible as an individual. You can give together, make a bigger impact and get more from the shared experience.

In summary, a donor advised funds allows

  • Ring-fenced money for long or short-term charitable giving
  • Estate planning which can be modified without extensive legal fees
  • Flexible gifting options
  • Tax efficiency
  • The ability to name the fund as you choose, or stay anonymous
  • Ease of reviewing giving history and investments within one trust account
  • Freedom to give to charities all over the world from one vehicle without time constraints or pressures, or the need to do your own due diligence
  • Family to be involved and planning for your giving to continue beyond your lifetime
  • Additional advisory and strategic support to help you have more impact and achieve your philanthropic goals.

Give with greater purpose

At Charities Aid Foundation we connect donors with charities to enable social progress. Learn how our advice puts philanthropic purpose to work.

Work with professional philanthropic advisors

As the UK’s leader in donor-advised giving, we’re a trusted philanthropy partner of some of the largest wealth management firms in the UK. Learn more about working with us.

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