How financial planning and charitable gifting can go hand in hand

For more than 25 years, Herbert Scott has helped people achieve their life’s goals through meaningful financial planning and that often includes charitable gifting.

Our focus is often on clients coming up to, or in the early phases of, retirement. Understandably, as clients age, the early question of “have I got enough to live the life I want in retirement?” evolves into “what can I do to mitigate my Inheritance Tax bill?”.

Charitable gifting

Not all clients have wider family to pass their funds on to, and even those that do still often wish to undertake an element of charitable gifting. This can either be during their lifetime, when the value of the gifted funds could potentially be outside of their estate immediately, or in their Wills when the rate of IHT applied can be reduced from 40% to 36% where 10% or more of their taxable estate is left to charity.

Working with Sussex Community Foundation

It is at times like this that we often turn to the expertise of Sussex Community Foundation to better the philanthropic conversations we have with our clients. From our viewpoint, involving the Foundation in these discussions provides us with confidence about the charitable gifting our clients undertake, safe in the knowledge that the charities have undergone the scrutiny of the Foundation’s due diligence. It also broadens our clients’ awareness of charities which are of particular interest to them and gives them the opportunity to have as much (or as little) involvement with the charities as they feel comfortable with.

Case study

We recently introduced an elderly client to the Foundation, after using our cashflow planning software to establish she had more than sufficient wealth to meet any eventualities she was likely to encounter during her remaining lifetime, including the potential funding of care fees. She wanted to see what other options there were to reduce the Inheritance Tax bill on her estate and, while she was not averse to paying some Inheritance Tax, the idea of having some control over where her surplus money was spent appealed, rather than leaving this decision to the Government on her death.

We explored options such as increasing gifting to her family, investing in tax-lead Inheritance Tax planning schemes, and charitable gifting. At this point, we introduced our client to the Foundation so that they could help her gain a better understanding of the range of local charities and community groups that aligned with her philanthropic interests. Under their guidance she decided to set up a Donor Advised Fund.

On a personal note, I continue to be heartened by the number of clients who are interested in making charitable donations as part of their financial plan and having good conversations around this subject is a valuable part of the service we provide.

Tracey Payne BA(Hons), Chartered FCSI, DipPFS
Investment Director & Financial Planner

Herbert Scott Ltd
The Left Bank, 173 High Street, Lewes, East Sussex, BN7 1YE

enquiries@herbertscott.uk
www.herbertscott.co.uk

Herbert Scott is authorised and regulated by the Financial Conduct Authority.

This article is distributed for information and/or educational purposes and should not be considered investment advice or an offer of any product for sale.

Spotlight on... Brighton & Hove

Many areas in Sussex rank among the 20% of neighbourhoods in England with the highest levels of deprivation. Our Tackling Poverty report found the highest levels of deprivation are around the Sussex coast, with the eight most underprivileged towns situated in coastal communities, including Brighton & Hove.

Brighton beach with two deck chairs and the west pier

First thoughts about Brighton & Hove tend to focus on the local artistic talents showcased at the creative Brighton Fringe and Festival; historic landmarks such as the iconic Royal Pavilion and the famous Brighton Pier; Georgian buildings along the seafront and of seagulls, Pride flags and fish and chips. An inclusive, free-thinking city in the heart of Sussex.

However, what many people don’t know is that Brighton & Hove has the second highest number of highly deprived areas of any Local Authority in Sussex (15 Lower Super Output Areas in the most deprived 10% nationally in 2019) and contains the third most deprived ward in the county, East Brighton.

Our Tackling Poverty Report highlights three main challenges communities in Brighton & Hove are experiencing:

Table showing initial assessments of homelessness circumstances - showing Brighton has higher levels than the rest of Sussex.

Homelessness

Brighton & Hove has the highest rate of households assessed as homeless in the county (1.44%) and is nearly double the national rate (0.66%). The city also has 0.89% of households threatened with homelessness, meaning it is likely that they will become homeless within 56 days. Both figures are significantly higher than England as a whole.

The report also found Brighton & Hove had the highest number in Sussex of rough sleepers on a typical night, at 41 people.

Pensioner poverty

Brighton & Hove has higher levels of pensioner poverty (15.3%) than the national average and contains the ward with the highest level of pensioner poverty - Queen’s Park. It is also the town with the largest number of households affected by fuel poverty in Sussex.

Poor outcomes for LGBTQ+ people

Brighton & Hove has the largest proportion of people identifying as ‘not straight or heterosexual’ out of all Local Authorities in England and Wales at 11.7%. This section of the population in Brighton & Hove is more likely to experience unemployment than in any other Local Authority in Sussex. 7.1% of people identifying as LGBTQ in the city are unemployed – higher than across any other town in Sussex and notably above the national average unemployment rate which is 2.9%.

Brighton & Hove has the highest number of people experiencing income deprivation and employment deprivation of any Local Authority in Sussex.

What’s happening on the ground?

At the Foundation, we’re proud to support and want to share some of the groups working in Brighton on the challenges highlighted by our Tackling Poverty report.   

Homelessness support - Clock Tower Sanctuary Brighton  

The Clock Tower Sanctuary is a day centre in Brighton & Hove providing vital practical and emotional support to 16-25-year-olds who are homeless and insecurely housed. They recently received a grant from the Foundation towards the cost of their Centre Manager.

“I started to come to The Clock Tower Sanctuary last year, but it’s helped turn my life around already. With the help of my caseworker, I’ve gone from emergency accommodation into a more permanent, supported accommodation, and I am now waiting to move into independent social housing. It’s so much more than just a place to come and have food or a shower. I now see potential in my life and feel that I’m on way towards a much better place.”

Esther, young person supported by  Clock Tower Sanctuary

LGBTQ+ support - The Ledward Centre

The Ledward Centre is an LGBTQ+ Centre that works to reduce social isolation and improve wellbeing by creating a safe, sober, social space, and organising opportunities for members from across the diverse LGBTQ+ communities. The centre has proved to be an important sober space, allowing a growing number of people to socialise in a safe supportive atmosphere. The community group received a grant last year towards the salary costs of a part-time centre manager and facilitator.

Group of people who were on the LGBTQ+ comedy course

The centre recently ran a beginner’s comedy course for LGBTQ+ women and those who are non-binary for six weeks where participants learnt methods and techniques to create a stand-up comedy set.

“These wonderful funny humans smashed their first gig in front of a live SOBER audience. Alongside performing stand-up, the participants have made a wonderful bond with each other, and the feedback has been amazing!”

Ali, comedy course creator and facilitator

Pensioner poverty - Food and Friendship

Food and Friendship brings people together through food. They exist to tackle loneliness in older, isolated people and adults with learning disabilities. They provide low-cost bi-weekly lunch clubs and evening cooking clubs facilitated by a large community volunteer team. The charity received a grant in March towards their core running costs.

People attending a Food and Friendship lunch around a table

“Too many older people live and eat alone in the city, having lost friends and loved ones. Our lunch clubs are like a large family for people who don't have one where they can enjoy a healthy home-cooked meal and come together to share friendship and laughter. They are a place to feel welcomed and valued, to learn something, to receive support and to help build the resilience to get through another week alone”.

Caroline, Founder

How you can help

Our Tackling Poverty report highlights the desperate need in parts of Sussex and tells the story of why more local giving is essential, to increase support for people in our county.

“The Cullum Family Trust fully recognises that the voluntary sector engages with the local community to help provide the essential, real support to fill the many gaps that are impacting the vulnerable and in particular the older members of our communities. These gaps are ever widening and are exacerbated by the lack of funds to deliver those vital support services that are so essential in what is often very challenging circumstances.”

Claire Cullum-Jay, Fundholder at the Foundation

Get in touch with the Philanthropy team to discuss how you can help make a difference in Brighton & Hove, or you can donate directly to our Tackling Poverty Fund here.

Are Sussex families paying too much in Inheritance Tax?

Martin Roberts looks into the latest data on Inheritance Tax (IHT)

Although only about 4% of UK deaths result in a liability to IHT, there were still around 27,000 estates paying IHT in 2020/21. These naturally tend to be concentrated in the wealthier parts of the country and especially those where average property values are higher.

According to the latest published statistics, the Taxman took £5.76bn in IHT in the UK in 2020/21, and estates in the South East were the second biggest contributor to that figure after those in the London area. In fact, the South East contributed a fifth of the UK total - 4,990 estates in the South East paid a just over £1bn in IHT.

In the Sussex area, 176 of those estates paying IHT were in Brighton & Hove; 127 were in the Chichester area, 105 in Arundel and the South Downs, 89 in Lewes and 67 in Mid Sussex. In these five Sussex areas alone, 564 families paid a total of £131m in IHT, an average of over £230,000 per estate.

IHT is currently charged at 40% on assets (in excess of the threshold levels) which are transferred on death, including gifts made within seven years of death and gifts made to and assets contained in certain types of trusts.

There are IHT exemptions for transfers of assets between spouses and civil partners and for transfers to qualifying charities. There are also reliefs for Agricultural and Business Properties and also for Residences transferred to direct descendants.

As a result, most estates (over 95%) pay nothing as they fall below the threshold levels at which IHT kicks in, after applying allowances and reliefs. In fact, 81% of IHT in 2020/21 came from net paying estates valued at £1m or more, and these estates actually amounted to only 4.3% of all estates requiring a grant of representation.

Of course, as the age of the taxpayer increases, less of their wealth tends to be tied up in property, which can attract exemptions or reliefs, and more is held in cash and securities. So, the vast majority of IHT (82%) is paid on estates where the deceased is over 75.

It’s worth remembering that charitable donations to qualifying charities are tax free during your lifetime, and that if charitable donations are left in the will, they are taken off the value of the estate before IHT is applied.

In addition, if 10% or more of the taxable estate is left to charity, a reduced IHT rate will apply to the rest of your taxable estate not passing to charity. Currently, the normal IHT rate of 40% rate is reduced to 36%, saving 4% on the whole of the rest of the taxable estate.

As a result, any negative effect on non-charity beneficiaries is likely to be significantly reduced and, depending on the figures, the effect of the reduced IHT rate can sometimes mean that more is received by the eventual non-charity beneficiaries than would have been the case before the donation.

We always recommend those looking at their estate planning take qualified professional advice. In this case, if the estate is one of the 4.3% facing a potential IHT liability, taking early advise on all the reliefs and exemptions to IHT, including charitable donations to qualifying organisations like Sussex Community Foundation, might well be worthwhile.

At Sussex Community Foundation we make grants to local charities, groups and organisations to address specific needs in the community. Our donors’ and fundholders’ philanthropic effort make an enormous difference in the lives of many in Sussex. Read more about the stories and groups we support here.

Martin Roberts, Trustee

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