In today’s climate of economic and geopolitical uncertainty, it may feel difficult for businesses to make strategic, long-term plans around giving. Indeed, charitable giving often remains an afterthought rather than an integral part of the business model. Yet giving is a key aspect of being a responsible, purpose-driven business and there is an expectation that businesses should be giving – according to a CAF survey, only 23% of people think that businesses are never obligated to give to charity.
Interestingly, incoming changes to inheritance tax and business property relief could be about to reshape the landscape for philanthropically-minded entrepreneurs in the UK. These evolving regulations position one type of philanthropic structure as a potential solution for those concerned about social purpose, succession and the long-term future of their businesses.
While there are many ways a business can structure its giving, shareholder foundations present a compelling and often underappreciated solution for professional advisers seeking to guide clients with long-term business strategies in mind.
What are shareholder foundations?
Shareholder foundations, also known as holding foundations or philanthropy companies, are legal entities, typically established for charitable or public-benefit purposes, that hold a significant equity stake in, or even full ownership, of a business. The profits generated by the company are distributed to the foundation, fuelling philanthropic initiatives in perpetuity. While less common in the UK and US, the model has been widely adopted across Scandinavia and parts of Europe - around 50% of listed companies in Denmark are owned by a charitable foundation – and many of the world’s biggest brands, including Ikea, Bosch, Lego and Carlsberg use this structure.
The opportunities
For many business owners, the changes to inheritance tax and business property relief due to take effect from April 2026 have brought forward conversations about succession-planning.
Imogen Buchan-Smith, a Director at EY who is a private client tax adviser, believes that the significant restriction in the availability of business relief, as well as business owners’ desire to be philanthropic and ensure that their businesses endure, means that the shareholder foundation model may become a more attractive and commonly used vehicle in the UK.
She says: “Going forward, business owners won’t simply be able to pass on their interest in their trading businesses to younger generations free from inheritance tax as they would have been able to previously. Instead, these interests will potentially be subject to inheritance tax at a rate of 20%. Funding such a significant tax charge on death may impact the surviving family’s ability to continue to run that business in the future. Therefore, business owners are more focused on planning for the future and transition of their businesses earlier than they may have previously been, in order to ensure that this is achieved with as little impact on the business (and as tax efficiently) as possible. Alongside lifetime gifts to family members, this could include charitable giving (which should not give rise to inheritance tax charges) and, indeed, owning businesses within a charitable vehicle.”
The idea of leaving a legacy is used by many advisers to begin conversations on philanthropy with high-net-worth individuals. In turn, shareholder foundations provide a great opportunity to align a client’s personal and professional legacies. Traditionally, shareholder foundations have been something considered long after a business is established – the Hans Wilsdorf Foundation became the sole owner of Rolex only after its founder died. Sir Alec Reed was prompted to give money to his charity, the Reed Foundation, 25 years after founding his eponymous recruitment firm, due to diagnosis of a serious illness. The Foundation initially purchased 10% of shares in the company, growing over time to 18%.
However, by setting up a business under a shareholder model early on, NextGen business leaders can demonstrate their values from the start, have social impact now, and ensure those values and social contributions continue far into the future. This was the case with Pascal Lorne, a French entrepreneur, whose charitable endowment fund became the principal shareholder of his digital recruitment firm from the get-go.
For a new wave of entrepreneurs, success is measured by more than just financial returns. Shareholder foundations offer a powerful structure for embedding impact into the operational DNA of a company. By tying ownership to a philanthropic vehicle, business founders can ensure that commercial growth amplifies their contribution to society and ensure a long-term, stable shareholding not focused on short-term gain.
