Setting Up a Charitable Foundation: A Guide for HNW Families

Philanthropy sits at the intersection of wealth management and values. For many high-net-worth families, it is not simply about tax efficiency — though that is a genuine benefit — but about legacy, family identity, and the desire to make a meaningful contribution to causes that matter. For internationally mobile families, the question is often which philanthropic structure best serves their goals, given the jurisdictions they span.

This guide sets out the main options available: charitable foundations, donor advised funds, charitable trusts, and giving from offshore structures.

Why Structure Your Giving?

Unstructured giving — writing cheques to charities as the mood takes you — is entirely legitimate. But it misses several opportunities:

Tax efficiency. Structured giving can reduce your income tax bill, capital gains tax exposure, and potentially your inheritance tax position. The tax benefits are real and material for larger donations.

Strategic focus. A foundation or giving vehicle allows you to develop a coherent philanthropic strategy rather than responding reactively to fundraising appeals.

Family governance. Involving children and grandchildren in foundation governance is a powerful tool for next-generation financial education and for reinforcing family values around wealth.

Granting flexibility. A foundation can make grants over time, supporting organisations through multi-year funding — a more impactful approach than one-off donations.

Legacy. A named charitable foundation endures beyond your lifetime, continuing the family's philanthropic mission under the governance structure you establish.

The UK Charitable Foundation

In the UK, a charitable foundation is typically established as a charitable company limited by guarantee or a charitable trust and registered with the Charity Commission for England and Wales. Both structures require:

• A clear charitable purpose falling within the Charity Commission's recognised categories (relief of poverty, education, religion, health, arts, environment, sport, and the "other purposes beneficial to the community" catch-all)
• A board of trustees (minimum two for a trust; minimum three directors for a charitable company)
• Governing documents (a constitution or trust deed) setting out how the charity is governed
• Annual filing of accounts and annual returns with the Charity Commission (required once income exceeds £10,000)

A UK-registered charity benefits from:

• Gift Aid: donations from UK taxpayers attract Gift Aid at 25%, effectively increasing the value of every £1 donated by 25p at no cost to the donor. A higher-rate taxpayer can also reclaim the difference between higher-rate and basic-rate tax on the donation through their Self-Assessment return.
• Exemption from income tax and capital gains tax on income and gains generated within the charity (provided they are used for charitable purposes).
• Gifts of shares or property to the charity are exempt from capital gains tax in the donor's hands AND attract income tax relief at the donor's marginal rate on the market value of the asset given. This makes giving appreciated shares a particularly powerful strategy — you avoid the CGT you would have paid on a sale and get income tax relief on top.
• Business property and agricultural property may also be given to charity free of IHT.

The minimum viable foundation for UK purposes is typically where the family intends to donate at least £50,000-£100,000 over a reasonable period. For smaller amounts, the complexity of running a registered charity may not be warranted — a donor advised fund is more appropriate.

Donor Advised Funds (DAFs)

A donor advised fund is a simpler, lower-cost giving vehicle managed by a sponsoring organisation (typically a charity itself). You make a donation to the DAF, receive the tax relief immediately, and then advise the DAF over time on which charities should receive grants.

Key advantages:

• Immediate tax relief on the donation, even if the money is not distributed to end charities immediately
• No Charity Commission registration — the sponsoring organisation handles all compliance
• Investment of the fund — contributions can be invested within the DAF and grow tax-free until granted
• Lower minimum investment — some UK DAF providers operate from £10,000; others from £25,000+
• Flexibility — you can recommend grants to almost any registered UK charity

Disadvantages:

• The sponsoring organisation has final say on grants (legally speaking), though they follow donor recommendations in practice
• Less control than your own foundation
• No ability to employ staff, run programmes, or make grants outside the UK (without a more complex structure)

DAFs are well-established in the US (where they have been available for decades) and growing in the UK. Major UK DAF providers include the Charities Aid Foundation (CAF), Prism the Gift Fund, the National Philanthropic Trust UK, and various community foundations.

Charitable Remainder Trusts and Similar Structures

A charitable remainder trust allows you to place assets in a trust, receive an income from those assets during your lifetime (or for a fixed period), and pass the remainder to charity at the end. The structure is more established in the US than in the UK, where the equivalent mechanism tends to involve careful structuring with tax counsel.

The UK equivalent involves careful interplay between the income tax relief on the donation, the taxable income received during the trust's life, and the IHT treatment. Specialist structuring advice is essential.

The 10% Charitable Legacy: An IHT Planning Tool

If you leave at least 10% of your net estate to registered charities in your will, the inheritance tax rate on the rest of your taxable estate drops from 40% to 36%. This is a meaningful saving for larger estates.

Example: A £4m estate with £400,000 (10%) left to charity. The remaining £3.6m (above the nil-rate bands) would be taxed at 36% rather than 40% — a saving of £144,000 in this illustrative scenario, purely from the reduced rate. The charity also receives the £400,000 gift. The overall position may leave beneficiaries better off than a 40% rate on the full estate with no charitable bequest.

For estates already inclined to support charitable causes, this is worth modelling carefully with an estate planning adviser.

International Giving and Offshore Structures

For internationally mobile families, philanthropic structures cross borders in two ways:

Giving to overseas charities. HMRC Gift Aid applies to donations to UK registered charities. Donations directly to overseas charities — however well-regarded — do not attract UK Gift Aid or income tax relief. To give to overseas causes with UK tax efficiency, the usual mechanism is to donate to a UK-registered charity that then makes grants overseas, or to use a DAF with a global grants programme.

Offshore investment bond holders. Assets within an offshore bond can be assigned to a charity — this is a transfer that triggers a chargeable event and is taxed accordingly, though the charity may be able to reclaim tax depending on its status. Specialist advice is required before making a gift from an offshore structure.

Non-UK charitable structures. In some jurisdictions, family foundations have special legal status (Liechtenstein Stiftungen, Dutch foundations, US 501(c)(3) organisations). For internationally mobile families with substantial wealth, a dual-structure approach — a UK-registered charity for UK tax-efficient giving alongside an overseas foundation for international activities — is sometimes appropriate. The compliance burden increases significantly with international structures, and specialist cross-border philanthropy advisers are needed.

Family Governance in Philanthropy

One of the most valued aspects of a family charitable foundation — particularly for families with significant wealth — is the governance framework it creates for involving the next generation.

A well-governed foundation gives younger family members:

• A real responsibility (making grant decisions)
• Education about the challenges faced by charities and NGOs
• Practice in financial stewardship and governance
• A shared family identity around values rather than just wealth

Many family foundations hold an annual grant-making meeting involving all generations. Some allocate specific funds to each generation to direct independently. A family philanthropy adviser can help design a governance model that fits the family's culture.

How Global Investments Can Help

Global Investments advises internationally mobile families on the full spectrum of wealth planning, including philanthropic strategy. We can help you identify the right giving structure for your circumstances, introduce you to specialist legal advisers and philanthropy consultants, and ensure that your giving is integrated with your tax planning, estate planning, and investment strategy. If building a lasting philanthropic legacy is part of your vision, we would welcome the conversation.

This article is for general information only and does not constitute tax or legal advice. Charity law, tax reliefs on giving, and overseas equivalents are complex and change over time. Always seek qualified professional advice before establishing any charitable structure.