Anyone
who has ever tried to order coffee in America and been tempted
to give up will know that it’s a country where much
is made of choice. The bewildering array of options can sometimes
be a little overwhelming. Meanwhile, in the UK, decaf is sometimes
still looked on as dangerously exotic.
For planned giving much the same is true. While most UK donors
must wait until death to leave a large sum to charities in
their wills, Americans, through various “planned giving
vehicles”, enjoy a range of options to give large amounts
to charity during their lifetime, while retaining some interest
in the gift.
Gift annuities are a good example. The most common planned
giving vehicle after bequests, the first was written in 1843
and they have been popular since the 1920s. Today, the American
Council of Gift Annuities (ACGA), which promotes their use,
estimates that more than 4,000 charities issue them, and its
2004 survey found the total value issued by each charity in
the previous year averaged $645,000.
Donors can buy the annuity for as little as $5,000, and stocks
and even property are sometimes used. In return, the charity
agrees to pay a fixed return, based on the donor’s age
for the remainder of their lives. When the annuitant dies,
the charity keeps whatever is left. In the ACGA survey, an
average of 85.5 per cent of the original payment remained.
Similarly, charitable remainder trusts (CRTs), the instrument
that has attracted most attention on these shores, enables
a beneficiary to put a capital sum or other property into
trust for a charity while retaining the investment income
from it, usually for life. In the US, such trusts have raised
more than $110 billion for charities over the last 30 years.
For charities these vehicles offer a number of benefits, most
obviously that the gift is irrevocable. Unlike legacies, where
the donor can redraft their will, once they have bought an
annuity or put money into a CRT, the charity can bank on the
money and use it in their financial planning or as leverage
for loans.
Furthermore, charities say that the vehicles enable them to
secure significant gifts and establish relationships with
donors who could not otherwise afford to give.
“If the hugely wealthy want to give a hundred thousand
or a million, they can just do it,” explains Theresa
Lloyd, a consultant and author of Why Rich People Give. “These
vehicles are for people who may have a reasonable amount of
money but aren’t in the position to give away large
amounts of capital because they don’t know what old
age will bring.”
Given their success in the US, fundraisers over here have
long argued that such vehicles would be an ideal way to target
the “mass affluent”; the three million or so in
this country that have free assets of between £70,000
and £350,000, accounting for more than £500 billion.
The Institute of Philanthropy first put the issue to Gordon
Brown in 2001. A couple of years later, the European Association
of Planned Giving, the Charities Tax Reform Group and others
formed what would later become the Lifetime Legacies Coalition
to put some detail on proposals for a British version of the
CRT. Meanwhile, academics have also suggested the vehicles
could help solve universities’ funding problems; a task
force commissioned by government in 2004 to look at increasing
higher education’s voluntary income concluded that they
should be introduced.
Death and taxes
Of course, there is nothing to stop donors in the UK setting
up trusts during their lifetime that leave capital to charities
on their death. But, equally, there is no reason why they
should.
Crucially, the US system provides a range of tax incentives
to do so. As well as avoiding inheritance tax when the capital
reverts to the charity on their death, donors enjoy an income
tax deduction when they initially donate the sum, capital
gains relief and, sometimes, relief on at least part of
the income payments the gift generates. “By contrast,
in this country there would be no recognition that the charity
is going to receive the benefit,” says Sam MacDonald,
a partner in the charities team at solicitors Farrers and
member of the Lifetime Legacies Coalition. “From a
legal point of view, you can set one up quite simply, but
you would be making a commitment with no corresponding tax
saving, and you might even find you paid more.”
Or, as Professor Eric Thomas, vice chancellor of the University
of Bristol and chair of the higher education taskforce,
puts it: “In the US, people can give their house,
continue to live in it and get tax relief. If I donate my
house in this country, I have to move out.”
An aging population, rising property prices and increasing
public discussion over the impact of inheritance tax and
pension provision have only made these discussions seem
more relevant. Therefore, a recent debate in the House of
Lords aimed at persuading the government to introduce charitable
remainder trusts seemed to hold great promise.
Unfortunately, however, the debate showed how little progress
has been made. Speaking for the government, Lord McKenzie
of Luton said the Treasury was “keeping the matter
under review” but remained unconvinced. More surprisingly,
perhaps, the spokesperson for the Conservatives, Baroness
Noakes, also made it clear the introduction of charitable
remainder trusts would not be a priority should her party
win power.
Behind the reluctance are a number of concerns over the
proposals. Foremost is the fear of abuse. There have been
a number of cases with CRTs in the US, and these have rattled
a Treasury here that is already concerned its tax incentives
scheme for gifts of shares has been too open to misuse.
The result, suggests MacDonald, is that the government is
not keen to introduce new tax exemptions until it is confident
the existing ones are not being abused.
Related to this is a suspicion that planned giving vehicles
would disproportionately benefit the well off without providing
a correspondingly large increase in charitable giving. “We
need to be sure that the evidence shows that CRTs have boosted
giving by the wealthy rather than just facilitated it,”
Lord McKenzie told the House. The CRT, he suggested, might
just provide additional tax relief for those who would leave
a legacy anyway.
Members of the coalition reject this argument. They complain
that the Treasury is asking for proof of demand without
a supply to prompt it. After all, Lloyd notes, there was
no demand for Macdonalds before it set up. In any case,
if it didn’t increase donations, they ask, why would
the Americans bother? They also point out that the coalition
purposefully decided to push for CRTs, as against charitable
lead trusts (under which the charity benefits from the income
for a period but the capital reverts to the donor) because
they were less susceptible to the charge of being a tax
tool for the rich.
“The fact is, all the evidence in the US points to
this being a hugely successful mechanism for raising money
from people with middling levels of wealth,” maintains
Lloyd.
Whatever the reality, though, the perception is proving
hard to shake. Baroness Noakes’ response, that the
Conservative’s first priority on taking power would
be to ensure the stability of public finances, suggests
her party also sees the proposal as a tax cut, while Megan
Pacey, director of policy and campaigns at the Institute
of Fundraising, notes ruefully that much of the support
for the proposal came from “a few right wing Tory
peers”.
Perhaps the most damaging argument against the introduction
of the schemes, however, is that many charities are not
taking advantage of the incentives already on offer. Both
Baroness Noakes and Lord McKenzie noted that the proportion
of donations using gift aid remained at only a third, and
McKenzie also remarked on the low take up of payroll giving,
used by only about two per cent of employees, against one-third
in the US, and various other incentives the government has
introduced since 2000. “With such a range of reliefs,
is there a need for any more,” he asked.
Life after death
What this means for the Lifetime Legacies Coalition is uncertain.
Some members say it is time to “regroup”. However,
Pacey is more resigned, saying that without the necessary
political will on either side, the coalition is in danger
of “flogging a dead horse” if it insists on
pushing for the introduction of CRTs. “Five years
ago someone saw this fantastic idea that appeared to be
working in the States and thought, ‘Goodness, why
can’t we apply it here?’ Now I think we’ve
got to the end of it.”
The campaign, she says, should now be widened to concentrate
on other ways in which the sector can build its asset base.
After all, she says, it can always revisit CRTs when the
time is right.
Sir Peter Lampl, chair of the Sutton Trust and another who
worked on the taskforce on higher education, is similarly
philosophical. “I think it’s something that
maybe is a little premature for the UK,” he says.
“We are light years behind the Americans not just
in terms of planned giving but giving generally. Perhaps
this is something that will come, but at this point it’s
just a bit too soon.”
For those fearful of falling yet further behind, this will
be frustrating news. However, with the largest ever transfer
of wealth between generations forecast for the next 40 years
as those born in the post-war period die, charities here
could do very well with legacies alone in coming years.
And, since the percentage in the UK planning to leave a
bequest is less than half that in the US, there’s
plenty to be getting on with.
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