Legacy and Charitable Giving Planning for International Investors

Legacy planning is about more than reducing inheritance tax — it is about ensuring that the wealth accumulated over a lifetime is distributed in a way that reflects your values, supports those you care about, and potentially makes a lasting contribution to causes you believe in. For internationally mobile high-net-worth individuals, legacy and charitable giving planning must take account of multiple legal systems, different tax treatment of charitable giving, and the practical challenges of cross-border philanthropy. This guide explores the key principles and tools.

Defining Your Legacy Intentions

Before designing any structure, clarity on objectives is essential. Key questions to address:

• How much of your estate do you wish to leave to family members versus charitable causes?
• Which specific charitable causes or organisations matter to you?
• Do you wish to give during your lifetime, at death, or both?
• Do you want to involve your children or other family members in charitable giving decisions?
• Is your primary goal to maximise the impact of charitable giving, to reduce IHT, or both?
• Do you want your legacy to be associated with your name (through a named fund or foundation), or is anonymous giving preferred?

The answers shape the appropriate structure. A family with strong philanthropic values and children who share them may benefit from a private foundation or family charitable trust that brings the next generation into the giving process. A busy individual primarily motivated by IHT efficiency may find a simple charitable bequest in the will or contributions to a donor-advised fund more appropriate.

Charitable Bequests in the Will

The simplest form of legacy giving is a bequest in your will — leaving a specified sum, a percentage of your estate, or a named asset to one or more charities. Key points:

IHT exemption: charitable bequests are entirely exempt from UK IHT. Every pound left to a recognised UK charity reduces the IHT payable on the estate by 40p (at the standard 40% rate) compared with leaving it to a non-exempt beneficiary.

The 10% rule: if the sum of all charitable bequests amounts to at least 10% of the "net chargeable estate" (roughly, the estate above the nil-rate band before the charitable bequests are deducted), the IHT rate on the remainder of the chargeable estate reduces from 40% to 36%. For a large estate, this 4% reduction on the total chargeable estate can be worth considerably more than the additional charitable bequest required to trigger it.

Recognised charities: to qualify for IHT exemption, the recipient must be a charity recognised by HMRC. Since 6 April 2024, UK charitable tax reliefs (including the IHT exemption) are restricted to UK charities and Community Amateur Sports Clubs (CASCs); EU and EEA charities, which previously qualified, no longer do. Overseas charities without HMRC recognition and non-charitable organisations do not qualify. Anyone with a will leaving a legacy to an EU/EEA charity in the expectation of the IHT exemption should review it.

Drafting: ensure charitable bequests are drafted precisely — full registered charity name, charity number, and ideally a fallback provision if the charity has merged or ceased to exist by the time the will takes effect.

Lifetime Charitable Giving

Giving to charity during your lifetime — rather than at death — provides additional benefits:

IHT and PET considerations: lifetime gifts to UK-registered charities are immediately exempt from IHT (not merely potentially exempt after seven years). There is no limit on the amount that can be given to charity free of IHT during lifetime.

Gift Aid: for UK taxpayers making donations to UK-registered charities, Gift Aid allows the charity to reclaim basic rate income tax (currently 20%) on the gross donation, effectively increasing the donation by 25%. Higher and additional rate taxpayers can reclaim the difference between the basic rate and their marginal rate through their self-assessment return, reducing the net cost of giving further.

Carry-back relief: UK taxpayers can elect for a Gift Aid donation made in one tax year to be treated as made in the previous year, allowing relief at the higher of the two years' rates.

Limitations for non-UK residents: if you are not a UK taxpayer, Gift Aid is not available. The tax treatment of charitable donations depends on your country of tax residence and that country's rules for recognising foreign charities.

Donor-Advised Funds

A donor-advised fund (DAF) offers a practical middle ground between outright giving to individual charities and establishing a private foundation:

• How it works: you make an irrevocable gift of cash, shares, or other qualifying assets to a sponsoring charitable organisation (such as Charities Aid Foundation in the UK, or Fidelity Charitable in the US). You receive an immediate tax deduction in the year of the gift. You then recommend grants from your account to charitable organisations at a time of your choosing — there is no legal requirement to distribute immediately, allowing you to build up the fund and grant strategically.
• Tax efficiency: donating appreciated assets (shares, property) directly to a DAF avoids capital gains tax on the appreciation and generates a charitable deduction for the full market value at the time of donation.
• Simplicity: a single donation to a DAF generates a single tax receipt; the subsequent grantmaking does not require further tax documentation.
• International access: offshore DAF structures are available through providers in Switzerland, Luxembourg, and elsewhere, allowing cross-border charitable giving with some form of tax recognition in participating countries.

Private Charitable Foundations

For high-net-worth individuals and families with major philanthropic ambitions, a private charitable foundation provides a dedicated structure:

UK charitable trust or company limited by guarantee

A UK-registered charity (typically structured as a charitable trust or a company limited by guarantee) provides a vehicle for long-term grantmaking with UK Gift Aid relief on donations in. Registration with the Charity Commission is required for income above £5,000 per year; trustees have legal duties and the charity is subject to Charity Commission regulation.

Offshore foundations

For international philanthropists, offshore foundations in jurisdictions such as Liechtenstein (the Liechtensteinische Stiftung), Luxembourg, Cayman Islands, and others provide flexible structures with strong asset protection, privacy, and governance frameworks. These are separate legal entities — not trusts — and are particularly suited to civil law jurisdiction families.

Practical considerations

• Regulatory compliance: foundations and charities involve ongoing regulatory obligations — accounts, reports, trustee/board duties.
• Family involvement: a foundation can be structured to involve children and grandchildren as trustees or board members, creating a vehicle for sustained family engagement in philanthropy.
• Named funds: most foundations allow naming after the donor family, providing a lasting public legacy.
• Investment of endowment: the foundation's assets must be invested in accordance with its charitable purposes and regulatory requirements. An investment policy that balances return, risk, and ESG considerations is advisable.

Cross-Border Charitable Giving: Practical Challenges

Internationally mobile individuals frequently wish to support charities in multiple countries. This creates specific challenges:

• Tax relief recognition: most countries limit charitable tax relief to donations to locally registered charities. A UK tax resident donating to a Cypriot charity, or a Cyprus tax resident donating to a UK charity, may not receive the same tax treatment as a domestic donation.
• Solutions: intermediary structures (cross-border DAF networks, dual-qualified foundations) can facilitate tax-efficient cross-border giving. In the EU, the Persche v Finanzamt Lüdenscheid judgment (ECJ, Case C-318/07, 2009) established that EU member states must provide tax relief on donations to charities in other EU member states on equal terms with domestic charities, provided the foreign body is recognised as charitable where it is established — though the practical implementation varies.
• Practical workaround: many international philanthropists route cross-border giving through a single DAF or foundation in their primary country of residence, which then makes grants internationally.

Integrating Philanthropy into Estate Planning

Charitable giving should be integrated into the overall estate plan, not treated as an afterthought:

• Coordinate with IHT planning: model the 10% charitable bequest threshold and determine whether increasing the charitable bequest to meet it is cost-effective in light of the overall estate and family needs.
• Coordinate with trust structures: if assets are held in a family trust, the letter of wishes can include philanthropic guidance, and some charities can be included as discretionary beneficiaries.
• Business exits: if you are planning a significant capital event (business sale, property disposal), consider whether pre-sale charitable donations of shares or other assets can reduce the capital gains and IHT impact.

---

The information in this guide is for general educational purposes only. It does not constitute financial, tax, or legal advice. Charitable giving rules, IHT provisions, and the recognition of foreign charities vary by jurisdiction and change over time. You should seek independent professional advice before implementing any legacy or charitable giving plan.

How Global Investments Can Help

Global Investments works with internationally mobile high-net-worth clients to integrate philanthropy into holistic estate and legacy planning. We help clients define their giving objectives, identify appropriate structures for their jurisdictional footprint, and co-ordinate with specialist legal and tax advisers to implement solutions efficiently. Contact our advisory team to discuss your legacy planning goals.