An IFA firm is helping Muslim clients donate to charity in the most tax-efficient way during Ramadan.
Chartered financial planner Scott Gallacher has penned a blog ‘Maximising Your Impact: Charitable Giving Strategies’ to advise clients on how they can give to charity from their income and investments.
The director of Leicester-based Rowley Turton said there are multiple ways people can support charitable causes while potentially benefiting from tax advantages.
He said: “As Ramadan is now underway, countless individuals across the UK are participating in a month of fasting, reflection, and acts of charity. Amidst diverse religious and cultural practices, the concept of giving back to the community holds profound significance.
“We have observed a notable uptick in inquiries from Muslim prospects over the past few years. Muslims are obliged to donate 2.5 per cent of their wealth to charity annually, reflecting their commitment to philanthropy and social responsibility.
"Additionally, we have a significant number of Christian clients who faithfully contribute a regular tithe as part of their religious practice.
"Furthermore, we work closely with several high-net-worth individuals who have expressed intentions to leave their entire estates to charitable causes, underscoring their dedication to making a lasting impact on society through legacy giving.”
Tax-efficient ways of giving
Gallacher added there were many tax-efficient ways of gifting.
This includes Donor-Advised Funds (DAFs), which offer a strategic avenue for charitable giving.
By contributing assets such as stocks, cash, or property to a DAF, donors can retain advisory privileges to recommend grants to chosen charities over time, potentially enjoying tax relief benefits along the way.
Gift Aid donations is another way that people can give directly if they qualify.
This mechanism allows the charity to reclaim basic rate tax on the donation, while higher-rate taxpayers can claim additional tax relief, maximising the impact of their giving.
Gallacher added that establishing a Charitable Trust also enables donors to earmark assets for philanthropic purposes while maintaining control over distribution.
Charitable trusts often come with tax benefits, including exemptions from inheritance tax and capital gains tax, providing an impactful avenue for legacy giving.
He said charitable bequests in estate planning also ensures a donor’s generosity extends beyond their lifetime.
By designating a portion of their estate to charitable causes, donors leave a lasting legacy while potentially reducing inheritance tax liabilities for their heirs.
Gallacher added that the Charity Lump Sum Death Benefit is often overlooked, but allows individuals to designate a registered charity as the recipient of a lump sum payment from their pension upon their death.
He added: “This tax-free contribution provides a unique opportunity for posthumous charitable giving, supporting causes close to your heart while maximising the benefit to society.”
IFA Kusal Ariyawansa said the Payroll Giving scheme is another good way to donate as it allows people to pay from their wages directly through their employer.
