By Adriana Lowe, Senior Private Client Manager
Think of a famous philanthropist and they’re probably tied inextricably in your mind with their eponymous charitable foundation. But even if you’re not a Gates or a Rockefeller, you might have considered setting up your own charity.
What is a private charitable foundation?
There’s no legal definition in the UK for a 'charitable foundation'. It’s essentially just a way of describing a charity which receives its funds from a private source, rather than from public fundraising. It’s common for private charitable foundations to be funded and overseen or run by wealthy individuals and their families.
What does a private charitable foundation do?
Ultimately, a foundation can do whatever you want it to, within the limits of UK law. So long as your activities fit within one of the charitable purposes listed in the Charities Act, are for the public benefit and you comply with regulations around reporting and other governance issues, you have a lot of flexibility.
One notable feature of private foundations, versus many public charities, is that they tend to make grants to other organisations, rather than run their own programmes and projects.
Why start a private charitable foundation?
Lots of donors, even really major givers, are perfectly happy making donations directly to their favourite charities from personal funds, but there are several reasons you might want to graduate from doing this. These could include:
- You might find it advantageous from a tax perspective to make a larger charitable gift than you want to donate all at once. In this case, putting the money into a charitable vehicle you control that allows you to spend it over a longer period might suit you.
- It could be important to you to create a lasting legacy and include family in your giving. Making them trustees of a family charity could be a way to achieve that.
- You may want to formalise your intentions and commit to your giving in a structured way and so an official entity seems like a good way to achieve this.
If, for these reasons, or any others, you’re considering opening a charity, you’ll need to know what you’re signing yourself up for.
Starting a private charitable foundation
Register with the Charity Commission and Companies House (if applicable)
You’ll need to register with the Charity Commission. They deal with over 8,000 applications annually and the process can take months. While there’s no fee, lots of charity founders choose to have an accountant or solicitor help them prepare their governing document and other application materials, to increase their likelihood of being accepted. The cost of this varies from hundreds to thousands of pounds.
Depending on the structure you choose, you may need to register with Companies House as well as the Charity Commission, and to be eligible for tax relief, you’ll also need to register with HMRC.
Set your charitable objectives
As part of your registration, you’ll need to set your charitable objectives. You’ll have to refer to the Charities Act to make sure your objectives fit within their definition of charitable purposes, and make sure all your activities are in line with the objectives that you’ve set.
Appoint trustees
You’ll need to appoint trustees. While you may want your foundation to be a family affair, it’s not always advisable to have exclusively family members as trustees, and the Charity Commission can challenge this. You’ll have to review the conflicts of interest guidance carefully, and potentially run a recruitment round for unconnected trustees.
It's also important to remember that you’ll be listed as a trustee on the Charity Commission website and the charity’s information will be public, including accounts and contact details. You should expect cold calls and unsolicited approaches for funding once you’re registered.
Comply with the relevant legislation
Once you’re set up, you will be responsible for ongoing compliance with all the relevant legislation. You’re not expected to be a legal expert but you have to take reasonable steps to find out what laws apply, which might be reviewing the guidance yourself, or paying for professional advice.
Manage and report accounts
You will also need to ensure that your accounts are well managed and reported on time to the Charity Commission. Depending on your charity’s income, you may need to have your accounts independently examined or audited. You should be prepared for the ongoing cost associated with accounting and reporting. The Charity Commission is an active regulator which can intervene if needed.
What if all that sounds a bit much, but you still have charitable ambitions beyond being making direct donations?
The Donor Advised Fund route – a simpler alternative
For many, if not most, people who are thinking of starting their own privately funded charity, a Donor Advised Fund (DAF) ticks all the same boxes, but with much greater flexibility and less stress.
A DAF, such as the CAF Charitable Trust, is a charitable giving vehicle which sits under the registration of an existing charity (in this case the Charities Aid Foundation). This means there’s no formal registration, and you can leave all the administration to the DAF provider, leaving you free to focus on giving.
You can add your family (or others) to your DAF and leave a bequest to ensure that your giving becomes a long-term legacy. With options to invest, you can grow your charitable pot, without having to manage or report on financial elements yourself.
A DAF can offer the option to be as public as you want with your giving or maintain complete anonymity. You can name the DAF and publicise it if you choose, just as you might a registered charity, but without getting cold calls asking for funding.
How CAF can support you
The CAF Charitable Trust is our flexible, secure donor advised fund for managing and maximising your long-term giving.
If you’d like to know more about the varied ways you can use our Charitable Trust, please read more here. We can also work with you if you’d like to convert an existing charitable foundation into a Donor Advised Fund.
Download our comparison table which explains the differences between our own Donor Advised Fund and a charitable foundation.
To find out what the next step is for you, please contact our team. We’re always happy to help.
Please note that CAF does not provide financial advice, and you should discuss any potential personal tax implications with your accountant or financial adviser.