Donating Shares to a DAF: What Advisors Need to Know

Donating appreciated shares is one of the most tax-effective ways your clients can be philanthropic. With the year-end tax deadline approaching, NPT UK can help you help your clients expand their philanthropy and their tax relief at the same time.

By contributing appreciated shares to a donor-advised fund (DAF), your UK tax-paying clients do not have to pay Capital Gains Tax (CGT) on the donated shares, especially attractive in light of the announced increase in CGT. If the donated shares are HMRC qualifying shares, your clients’ taxable income will be reduced by the market value of the qualifying shares in the tax year of the donation. Your clients claim this income tax relief through their Self-Assessment tax return form.

Setting up and using a DAF to gift appreciated shares has multiple benefits for your clients:

 

Maximising philanthropic capital

Charities are not always able to accept assets other than cash donations. With a DAF, your clients may donate other types of assets including appreciated shares, tangible assets like property or art, and alternative investments such as private equity and hedge fund interests. Once assets are donated to the DAF, they are liquidated for grantmaking to your clients’ chosen charities.

 

A convenient philanthropic solution

Your clients may set up a DAF within days which can be very helpful in the case of liquidity event. For instance, your clients might need a timely structure before a tax deadline. In addition, a DAF offers your clients a way to manage their giving centrally and get charitable tax relief each time they contribute to their DAF.

 

More time to decide which causes to support

For many of your clients, the idea of ring-fencing an amount of capital for future giving is appealing. The pressure of deciding which charities to support can be overwhelming, especially during such times when other priorities might be competing for time and attention. With a DAF, your clients may contribute shares to their DAF account when it makes the most sense from a tax planning perspective, and they are able to decide which charities to support at their convenience.

 

To help your clients confirm that their gift of shares qualifies for income tax relief, the donated shares or securities must be:

• Listed on the UK stock market, the Alternative Investment Market, or on a recognised stock exchange overseas

• Units in authorised unit trusts

• Shares in a UK open-ended investment company (OEIC)

• Holdings in certain foreign collective investment schemes

 

Gifts of unlisted or privately held shares and cryptocurrencies do not qualify for income tax relief, but they do have the benefit that your clients will not have to pay any CGT on the donation of these assets.

For more information about how giving shares can help your clients and their philanthropy, or to talk to us about DAFs, please contact us.