Tax-free investing: What are your options?

A key benefit of donor advised funds is tax efficiency of investments. 

Typically, investments outside of tax-free wrappers such as individual savings accounts (ISAs) and self-invested pension pots (SIPPs) are subject to Capital Gains Tax on disposal, Income Tax on dividends or interest and Stamp Duty Land Tax on property purchase. Additionally, investments in other countries may be subject to foreign taxes, for example, US withholding tax on US dividends.

Dependent on the individuals’ current level of income, the level of tax on investments can be sizeable. During the 2024/25 tax year, Capital Gains Tax for higher rate taxpayers (those earning above £50,270) can be up to 24% on investment gains.

Stewardship supports two main options for tax-free investing

1.    Investing your Stewardship account balance

Balances donated to Stewardship can be invested by us at the request of our donors. Stewardship is a charity with tax-exempt status in the UK, therefore, we are not subject to Capital Gains, Income and Stamp Duty Land Tax provided that all investment returns are used for charitable purposes. 

Additionally, we may be able to pay zero foreign taxes on foreign assets subject to exemption application. For example, UK retail investors pay 15% withholding tax on US stocks (reduced from 30% under the double tax treaty), whereas UK charities which have made an exemption application pay 0% withholding tax on US stocks.

This gives donors the opportunity to grow their Stewardship account balance using investments prior to granting the funds to one of our Partners. In the case of social investments, this provides a unique opportunity for donors to have double impact through investment and grant-making.

Example: Jonathan earns £110,000 a year and would like to support the work of a Christian charity which buys homes for the homeless in partnership with local churches. 

He would like to support the mission of the charity by providing a £50,000 loan bearing a concessionary 2% interest rate for ten years. Jonathan makes a donation of £40,000 to Stewardship, which is able to claim a further £10,000 in Gift Aid.

As Jonathan is a higher rate taxpayer, he is also able to reclaim £10,000 in higher rate Gift Aid relief and restores £5,000 of his tax-free Personal Allowance. This means it cost Jonathan £28,000 to make a £50,000 loan to support the mission of his chosen cause (£40,000 donation less £10,000 higher rate relief less £2,000 impact of restored Personal Allowance). 

Additionally, his Stewardship account balance will benefit from £1,000 in tax-free interest annually which would have been subject to 40% Income Tax above his Savings Allowance had he made the loan personally. 

Interest and capital repayments will be added to Jonathan’s Stewardship balance and will be available for further investment or for grant-making.  However, the funds are charitable and so cannot be returned to Jonathan personally.

2.    Non-cash giving 

There are many reasons donors may hold non-cash investments and invest directly prior to donating to their Stewardship Donor Advised Fund account, such as: 

(1) the increasing popularity of accessible and low-cost trading platforms 

(2) receiving listed shares from employers as a means of compensation and 

(3) ownership through inheritance. In each case, Stewardship can accept gifts of shares listed on any of the major global stock exchanges.

Additionally, Stewardship can accept non-voting shares in private companies, as well as UK land and property by a declaration of trust.

These non-cash gifts options mean you do not have to pay any Capital Gains Tax on the gift. In addition, you can deduct the market value of listed shares or UK land (but not private company shares) from your taxable income for the relevant tax year, achieving Income Tax relief at your marginal rate. 

Example: Sarah earns £100,000 a year and uses an online trading broker to invest in stocks and shares in her General Investment Account. 

She inherited £20,000 following the passing of a family member and invested the full amount in an index fund which increased in value by 80% in 5 years to £36,000 (gain of £16,000). Sarah decides that she would like to donate her shares to her Stewardship account by a simple exchange of letters. In this scenario, rather than Sarah paying £3,120 in CGT (24% of £16,000 less her £3,000 allowance), she decides to donate £29,250 of shares to Stewardship and sell the remaining £6,750 for her personal use. This enables her to both reduce her CGT bill to zero and utilise her entire £3,000 allowance. Additionally, she is able to claim income tax relief on her £29,250 donation at 40% (£11,700 relief).

If you would like to find out more about non-cash giving read this blog.

What investment options are available for my Stewardship account?

For our Philanthropy Fund accounts only, there is an option to nominate your own bespoke investment opportunity. This may be comprised of social impact investments, listed securities, investment funds or by way of a discretionary mandate with your investment manager. 

For our Donor Advised Fund and Philanthropy Fund accounts, we offer three sustainable investment portfolios managed by external asset managers who are regulated by the Financial Conduct Authority (FCA) and aim to generate capital growth over the long term. All the Stewardship Investment Portfolios are managed in line with Stewardship’s Investment Policy.

If you would like to explore financial or social investments or discuss tax-free investing, then please get in touch.

Get in touch

Disclaimers:
All investment decisions in relation to the balance of your Stewardship account are made at the discretion of Stewardship’s Trustees, and any investment made from the balance of your Stewardship account is made by Stewardship as principal.

Please note Stewardship is not regulated by the Financial Conduct Authority and does not offer investment, tax or legal advice, nor recommendations in relation to investments. Please read our Investment Disclaimer for further details.