Budget 2012: Raising the giving question

The budget doesn’t often have direct consequences for my role at NPC—working to promote more and better philanthropy amongst individuals, families and their advisors. But yesterday’s announcement included two very relevant developments. We were disappointed to see the cap on higher-rate tax reliefs for charitable giving, although hope that the Treasury will find ways to minimise the impact on major gifts.

But it is yesterday’s confirmation of the reduction in inheritance tax from 40% to 36% if at least 10% of an estate is left to charity that I find most interesting. Not because there’s likely to be a dramatic increase in the amount given to charities in people’s wills—there isn’t. It is estimated that of 552,000 deaths in 2010/11, only 3% of estates will actually pay any inheritance tax. And on an estate of £1m with a 10% gift to charity, it only reduces the tax bill by £24,300.

However there are two reasons to get excited about this inheritance tax change, which comes into effect for any death from 6 April 2012. First, it shows government commitment to improving the UK’s philanthropy culture through a practical measure, alongside their White Paper and proposed Giving Summit. We hope that philanthropy remains high on their agenda.

And second, and of real significance, legal and tax advisors talking to their clients about their wills will now have to raise the issue of leaving money to charity. We are always surprised at the reluctance of advisors to raise the subject—even in the US where philanthropy is generally more talked about, a 2010 Bank of America survey of high net worth individuals found only 10% of advisors raise the subject with clients. The vast majority wait for clients to start the conversation.

But is asking the question about leaving money to charity in a will enough? At NPC, we are constantly seeking to improve not only the amount of charitable giving but the quality of that giving. Advisors are perfectly positioned to help clients think through the best use of the money they want to leave to charity, rather than flicking through a charity yearbook and choose a charity they’ve heard of at random.

As any advisor will tell you, once they’ve had a detailed conversation with their clients about philanthropy, they gain a better understanding of the client’s values and passions, which develops the relationship considerably. As an example, NPC worked with a lawyer and his client in a series of workshops where we created specific guidelines for the foundation that would come into existence on the client’s death. At the end of the project, the lawyer said to us “this process has really allowed me to get to know the client so much better, I’ve learnt more about him during those two mornings than I have in five years”.

We don’t hold particularly high hopes for a considerable increase in the amount people leave to charity in their will as a result of the changes to inheritance tax. Having said that, it is encouraging to see the various campaigns launched recently to promote more giving, including Trevor Pears’ Give More Campaign, Spear’s Magazine’s 1 Per Cent Campaign, and the Legacy10 campaign, launched by Roland Rudd, where a number of public figures have pledged to leave 10% of their estate to charity.

But we have higher hopes that legal and tax advisors will now become more proactive about raising the giving question. And we hope that the conversation extends from pure tax and legal advice to broader questions around the objectives of giving, choosing really effective charities and how people can make the biggest difference with their money.