Charitable Trusts & Donor Advised Funds
The Ultimate UK Philantropy Guide
A complete UK guide to charitable trusts and Donor Advised Funds (DAFs). Explore tax benefits, set up steps, FAQs, and a detailed comparison to find your ideal giving strategy.
Understanding the Charitable Trust
A charitable trust is a traditional legal structure where assets are managed by trustees for specific, exclusively charitable purposes. It is governed by a Trust Deed and is best for those seeking high levels of personal control and a public legacy.
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Key Features
Irrevocable: Once assets are transferred, they cannot be returned to the donor.
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Public Benefit: Must meet at least one of the 13 statutory charitable purposes (e.g., education, health, poverty relief).
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Governance: Typically managed by at least three trustees who are responsible for all legal and financial decisions.
Strategic Tax Benefits
Both structures offer powerful incentives to maximise the impact of your donations:
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Inheritance Tax (IHT):
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Assets in a charitable trust are exempt from IHT.​
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Donating 10% or more of your net estate can reduce the IHT rate on the remainder from 40% to 36%.
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Capital Gains Tax (CGT): Gifting appreciated assets like property or shares directly avoids CGT.
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Income Tax & Gift Aid: Cash donations qualifying for 25% Gift Aid; hgher-rate taxpayers can reclaim additional relief on their tax returns.​
Comparison: Charitable Trust v. Donor Advised Fund (DAF)
While a trust is its own legal entity, a DAF is a sub-account within an existing "umbrella" charity.
Cases:
Essential Documentation for Your Trust
To ensure your ethical policy is legally sound, your board should:
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• Create a Written Investment Policy: Formally document your objectives, risk appetite, and any excluded sectors.
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• Minute the Balancing Exercise: Record the specific reasons why you chose to exclude certain investments and how you assessed the financial risk.
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• Take Professional Advice: The law expects you to seek expert financial advice unless you have a strong reason not to.