Legal complexity deterring wealthy from leaving money to charity, reveals new research
Complex red tape is deterring high net worth families from leaving money to charities in their will, despite increasing desire to do so, according to new research from Rathbones, one of the UK’s leading wealth managers.
A survey of high net worth families with average wealth exceeding £3 million* found that more than two in five (42%) say legal and financial complexity is the main challenge preventing them from including charitable giving in their estate plans. Almost as many (39%) cite a lack of knowledge about non-profit options, while over a quarter (26%) admit they are unsure where to begin.
High net worth individuals face various bureaucracy when giving to charity in the UK, including tax considerations, correctly structuring donations and foundations, ensuring governance and compliance adheres to charity law as well as balancing philanthropic goals with family inheritance and legacy planning.
These hurdles could be thwarting strong philanthropic intentions, according to the study. Despite the barriers, over half (53%) of the wealthy surveyed have increased charitable donations in the past two years, with two-thirds (66%) expecting to give more in the next two. When it comes to wills, nearly two-thirds (62%) have included a charitable gift – averaging £233,000 – while a quarter (24%) do not currently have a will, though 83% of these intend to write one within three years and include a charitable gift.
Tax benefits not understood
Leaving a proportion of an estate to charity is not only a way to create a lasting legacy – it can also be highly tax-efficient. If at least 10% of the net estate is donated, the inheritance tax (IHT) rate on the remainder can be reduced from 40% to 36%. Yet 19% of wealthy families are unaware that charitable donations can be incorporated into estate planning to reduce IHT, rising to 32% who do not know about the specific 10% threshold. Encouragingly, over eight in ten (84%) would consider leaving 10% of their estate to charity once aware of the benefit.
"Estate planning is no longer just about passing on wealth – it’s about doing so with purpose, but it is not always obvious which path to take,” says Rebecca Williams, Financial Planner at Rathbones. “More families are recognising that with the right advice, they can reduce their tax exposure, protect their loved ones, and make a meaningful difference to the causes they care about. The challenge is that too many still feel uncertain about how to start. That’s where professional guidance is essential – to turn good intentions into effective, lasting legacies."
Increasing role for professional advisers
In an effort to overcome the complex challenges of philanthropy, wealthy families are signalling a growing appetite for professional guidance in integrating giving into estate planning. Seven in ten (70%) expect to speak to their financial adviser about charitable giving in the next five years, compared to just over half (51%) who have already done so. Similar trends are seen with lawyers (48% plan to in the next five years vs 22% already) and accountants (21% vs 14%).
Despite this, one in seven (14%) say none of their current advisers have raised charitable giving during estate planning discussions – and of these, 57% say they would welcome such advice.
Wealthy individuals are also planning to leave non-cash assets to charity – such as property, investments or valuable personal items – which are exempt from IHT and excluded from the estate valuation. One in ten (10%) have already planned such gifts, with a further 82% likely to do so.
Gemma Gooch, Head of Charities Distribution at Rathbones, says: "The charity sector is facing a perfect storm: rising demand for services, economic uncertainty, and intense competition for donations. Legacy giving is an increasingly vital lifeline, yet our research shows that many high net worth individuals want to give but are held back by complexity and a lack of guidance. By making it easier for donors to integrate philanthropy into their estate planning, we can help secure long-term funding for the causes that sustain our communities."
To help overcome the common barriers to charitable giving, Rathbones is launching its Donor Advised Funds (DAF), a flexible, tax-efficient solution that enables clients to donate and support the causes they care about, both now and in the future. Donations to the DAF are eligible for immediate tax relief and can be invested to grow tax-free. Family members can also be nominated as successor advisers to continue the donor’s legacy.
