Using your wealth to support good causes might be one of your priorities. Yet, the challenges of balancing philanthropy with your long-term financial security and that of your loved ones might mean you’re hesitant to give back during your lifetime. Read on to find out how a financial plan could give you confidence.

Philanthropic giving is something many people already make part of their financial plan, and research suggests it could grow as it’s increasingly popular among younger generations.

Indeed, according to a report from UK Fundraising, 90% of wealthy young people express a strong desire to have a positive impact with their money, and 88% already donate to charity. Around 63% of those under 35 said they would consider increasing their charitable donations despite the difficult economic climate, compared to 13% of over-55s.

Whether you already have a charitable cause in mind or not, making philanthropy part of your overall financial plan could give you confidence. Read on to discover three questions you might want to consider to help balance your priorities.

1. How would philanthropic giving affect your finances?

To understand how supporting a good cause might affect your long-term financial security, it may be helpful to set out what you’d like to give. For instance, would you prefer to give regular financial gifts or a one-off lump sum?

With this information, you can start to incorporate your philanthropic goals into your financial plan.

Cashflow modelling could be useful here as it provides a way to visualise the effect your decisions could have on your long-term wealth. For example, you might model how giving away £10,000 each year may affect your disposable income in the short term, and the effect it would have on wealth accumulation. You could then see what may happen if you increase or decrease the figure.

By making donations part of your financial plan, you might be in a better position to strike a balance that suits you. If you’ve put off donating because you’re worried you could run out of money in retirement or be unable to cover other expenses, it could give you the confidence to proceed.

2. Do you want to consider the effect it’ll have on your estate and beneficiaries?

As well as your own long-term finances, you might want to consider the effect gifting to charity could have on your estate and beneficiaries.

Giving away some of your wealth during your lifetime or through a will could mean passing on less than you expect to loved ones. So, if supporting your family is a priority for you, it might also play an important role in your philanthropic decisions.

Again, cashflow modelling could help you understand the effect of giving away some of your assets for your beneficiaries. In some cases, it might be worthwhile to talk to your beneficiary so you understand how best to support them and ensure you’re on the same page.

3. How could you make philanthropic donations tax-efficiently?

It might seem strange to consider tax when you’re making a philanthropic donation. However, doing so could reduce your overall tax bill or mean that the charity benefits.

For example, gifting directly from your salary, before tax is deducted, could be a useful way to reduce your Income Tax bill. Similarly, you could pass on assets that might be liable for Capital Gains Tax if you sold them and made a profit.

If you’re a UK taxpayer, charities can also reclaim the basic rate of Income Tax you’ve already paid on your donation through Gift Aid. So, if you donate £100 to charity, they’d receive £125. In addition, if you’re a higher- or additional-rate taxpayer, you may be able to claim tax relief.

Alternatively, if you want to support a good cause when you pass away, it could reduce the Inheritance Tax (IHT) bill your estate is liable for.

If the total value of your estate exceeds the nil-rate band, which is £325,000 in 2024/25, it may be liable for IHT at a standard rate of 40%. However, if you leave more than 10% of your estate to charity when you pass away, the IHT rate may fall to 36%. In some circumstances, this could help you leave a charitable legacy and pass on more wealth to your loved ones.

Contact us to make philanthropy part of your financial plan

If you’re keen to make philanthropy part of your financial plan, please get in touch. We can work with you to understand your philanthropic goals and how to balance them with your personal aspirations.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning or tax planning.