Charitable Giving and Philanthropy for Internationally Mobile HNW Individuals

Overview

For high-net-worth individuals, charitable giving is often both a personal priority and a planning opportunity. Tax-efficient philanthropy can increase the impact of a given gift — a pound donated through a tax-efficient structure can cost the donor significantly less than a pound given without planning — and for very large estates, charitable legacies can form an important part of an IHT mitigation strategy.

However, the tax efficiency of charitable giving depends critically on where the donor is tax resident, which country's charities are being supported, and how the gift is structured. For internationally mobile individuals, the rules are more complex than for domestic donors, and several common assumptions — including that Gift Aid is universally available — do not apply.

This guide is for general information only. Tax rules on charitable giving vary by jurisdiction. Always obtain specialist advice before making significant charitable donations.

Gift Aid: What It Is and Who Can Use It

How Gift Aid Works

Gift Aid allows UK charities to reclaim basic rate income tax (currently 20%) from HMRC on eligible donations from UK taxpayers. If a UK taxpayer donates £80 to a registered UK charity, the charity can claim an additional £20 from HMRC — making the total gift £100 at a cost to the donor of £80.

Higher-rate and additional-rate taxpayers can additionally claim higher-rate relief on their self-assessment tax returns. A 40% taxpayer making an £80 donation effectively costs them only £60 (the basic rate relief goes to the charity; the higher-rate relief is reclaimed by the donor). A 45% taxpayer has an even more favourable cost.

Who Can Use Gift Aid

Gift Aid is only available to individuals who are UK taxpayers — specifically, those who have paid (or will pay) UK income tax or CGT at least equal to the Gift Aid tax reclaimed by the charity in the relevant tax year.

This has significant implications for non-UK residents:

• A non-UK resident with no UK income or gains cannot use Gift Aid — they are not a UK taxpayer and there is no tax for the charity to reclaim.
• A non-UK resident with some UK income (for example, UK rental income or dividends from UK investments) may be able to use Gift Aid on donations up to the amount of UK tax paid, but they should verify their position with a tax adviser.
• An individual who is mid-transition between UK and non-UK residence may have partial Gift Aid entitlement in a transitional year.

Practical Implication

Internationally mobile individuals who have become non-UK resident should not assume that Gift Aid remains available. Making Gift Aid declarations when you are not a qualifying UK taxpayer can result in the charity having to repay the Gift Aid to HMRC, with adverse consequences for the charity.

Donor-Advised Funds

What Is a Donor-Advised Fund?

A donor-advised fund (DAF) is a vehicle administered by a sponsoring organisation (typically a charity or financial institution) that allows donors to:

1. Make an irrevocable contribution of cash or assets to the DAF
2. Receive a tax deduction (or Gift Aid benefit) in the year of contribution
3. Retain advisory rights over how the money is invested and granted over time

The donor cannot direct grants to non-charitable beneficiaries or for non-charitable purposes, but can recommend grants to virtually any qualifying charitable organisation globally (subject to the DAF administrator's due diligence). The DAF holds the assets until grants are made.

DAFs in the UK

The Charities Aid Foundation (CAF) operates one of the UK's leading DAF-equivalent services (the CAF Charitable Trust). UK taxpayers can contribute to the CAF fund and claim Gift Aid on contributions in the usual way, then direct grants over time to UK and international charities.

DAFs for Non-UK Residents

A non-UK resident who has US income may be able to contribute to a US-based DAF (through Fidelity Charitable, Schwab Charitable, or similar) and claim a US charitable deduction. This can be useful for US persons abroad (though US-specific tax rules on charitable deductions for non-cash assets and carryforward rules should be checked with a US tax adviser).

For non-UK, non-US residents, the availability of DAF-equivalent tax efficiency depends on the domestic rules in their country of residence. Some countries (including France, Germany, and the Netherlands) have specific rules for cross-border charitable giving within the EU — take local advice.

Private Charitable Foundations

When to Consider a Private Foundation

A private charitable foundation is appropriate for individuals and families who:

• Have significant philanthropic intent (typically assets earmarked for charity of £1 million or more)
• Want a formal structure for their giving, with family governance and multi-generation involvement
• Intend to give to causes internationally, not just to existing registered charities
• Value a legacy structure that can continue after their death

UK Registered Charities

UK residents with large philanthropic intentions can establish a UK registered charity (governed by the Charity Commission). UK charities can claim Gift Aid on donations from qualifying UK donors, are exempt from UK tax on their income and gains, and have credibility and standing with institutional donors.

The downside of a UK charity is the regulatory burden: annual accounts and reports to the Charity Commission, restrictions on permissible activities, and requirements to act exclusively for charitable purposes.

Offshore Charitable Foundations

An offshore charitable foundation (in Liechtenstein, Cayman, Jersey, or similar) can hold assets and make grants internationally with fewer regulatory restrictions. However:

• Donations to an offshore charitable foundation do not qualify for UK Gift Aid unless the foundation is also a UK registered charity (or meets specific "eligible charity" conditions for Gift Aid purposes)
• The foundation must be genuinely charitable in its purpose and activities to avoid adverse tax treatment in the donor's country of residence
• Reporting and transparency requirements have increased significantly

IHT Planning Through Charitable Giving

The Charity Exemption

Gifts to UK registered charities — whether during lifetime or on death — are exempt from UK IHT. This makes charitable legacies a straightforward IHT reduction strategy for individuals with philanthropic intent.

The 10% Charitable Legacy Rate

Where a deceased's estate includes a qualifying charitable legacy of at least 10% of the net estate (the estate after debts, funeral expenses, exemptions, and reliefs), the rate of IHT on the taxable remainder is reduced from 40% to 36%.

For a large taxable estate, the mathematics can be compelling:

• The cost of the charitable gift (10% of net estate) is partially offset by the 4 percentage point reduction in the IHT rate on the remainder
• In some cases, the after-tax benefit to the family of leaving 10% to charity equals or exceeds the cost of the charitable gift

The interaction of the 36% rate, the charitable exemption, and the nil-rate band requires case-by-case modelling. For estates where philanthropic giving is already intended, timing and structuring the charitable legacy to take advantage of the 36% rate is a straightforward planning measure.

Lifetime Giving vs Legacy Planning

Giving during lifetime rather than at death has potential advantages:

• The donor can see the impact of their giving
• Gifts out of income are exempt from IHT immediately (no seven-year survival period required)
• PETs (outright gifts, including to charitable trusts) are immediately outside the estate if the donor survives seven years

The choice between lifetime giving and legacy planning depends on the donor's personal preferences, income needs, and health outlook.

Cross-Border Giving: Giving to International Causes

Many internationally mobile HNW individuals have philanthropic interests in multiple countries — supporting causes in their country of origin, their country of current residence, and globally. Cross-border charitable giving raises specific issues:

• Tax deductibility: A donation to a foreign charity is generally not eligible for tax relief in the donor's country of residence unless specific conditions are met. The EU has made some progress on cross-border giving within the EU (following CJEU case law), but this is complex and not universally applicable.
• DAF structures: A UK or US DAF can potentially grant to foreign charities if they satisfy the administrator's due diligence requirements. This is one way of obtaining a domestic tax deduction for giving internationally.
• Dual-qualified charities: Some organisations maintain registrations in multiple jurisdictions (a UK charity and a US 501(c)(3), for example) to facilitate tax-efficient giving from both countries.

Impact Investing as a Philanthropic Complement

For HNW individuals who want to use their wealth for positive impact but are not ready to give assets away, impact investing offers a middle path:

• Social impact bonds / development finance: Instruments that provide capital to social or development-focused enterprises, with a financial return linked to the achievement of social outcomes
• Green bonds and climate-linked investments: Fixed income instruments where proceeds are used for environmental projects
• ESG-integrated portfolios: Mainstream investment portfolios that screen for environmental, social, and governance criteria
• Private equity for impact: Direct investment in social enterprises, healthcare providers, education companies, or other businesses with measurable social benefit

Impact investing returns vary widely and carry the same market risks as other investments. It is not a substitute for charitable giving from a tax planning perspective — there is no charitable deduction for making an impact investment — but it can complement a philanthropic strategy.

How Global Investments Can Help

Global Investments helps internationally mobile HNW individuals develop and implement philanthropic strategies that are consistent with their overall financial plan and tax position. We can advise on the most tax-efficient structure for giving in your country of residence, help model the IHT benefits of charitable legacies, and introduce you to specialist advisers for private charitable foundations and donor-advised funds.

With over 32 years of experience serving internationally mobile clients, we understand that philanthropy is about more than tax efficiency — but we also know that with the right structure, your giving can go further. Contact us to discuss your philanthropic goals.