How advisers help clients give to charity during Ramadan

Chartered financial planner Scott Gallacher has penned a blog ‘Maximising Your Impact: Charitable Giving Strategies’ to advise clients on how they can give to charity from their income and investments.

The director of Leicester-based Rowley Turton said there are multiple ways people can support charitable causes while potentially benefiting from tax advantages.

He said: “As Ramadan is now underway, countless individuals across the UK are participating in a month of fasting, reflection, and acts of charity. Amidst diverse religious and cultural practices, the concept of giving back to the community holds profound significance. 

“We have observed a notable uptick in inquiries from Muslim prospects over the past few years. Muslims are obliged to donate 2.5 per cent of their wealth to charity annually, reflecting their commitment to philanthropy and social responsibility.

"Additionally, we have a significant number of Christian clients who faithfully contribute a regular tithe as part of their religious practice.

"Furthermore, we work closely with several high-net-worth individuals who have expressed intentions to leave their entire estates to charitable causes, underscoring their dedication to making a lasting impact on society through legacy giving.”

Tax-efficient ways of giving

Gallacher added there were many tax-efficient ways of gifting.  

This includes Donor-Advised Funds (DAFs), which offer a strategic avenue for charitable giving.

By contributing assets such as stocks, cash, or property to a DAF, donors can retain advisory privileges to recommend grants to chosen charities over time, potentially enjoying tax relief benefits along the way.

Gift Aid donations is another way that people can give directly if they qualify.

This mechanism allows the charity to reclaim basic rate tax on the donation, while higher-rate taxpayers can claim additional tax relief, maximising the impact of their giving.

Gallacher added that establishing a Charitable Trust also enables donors to earmark assets for philanthropic purposes while maintaining control over distribution.

Charitable trusts often come with tax benefits, including exemptions from inheritance tax and capital gains tax, providing an impactful avenue for legacy giving.

He said charitable bequests in estate planning also ensures a donor’s generosity extends beyond their lifetime.

By designating a portion of their estate to charitable causes, donors leave a lasting legacy while potentially reducing inheritance tax liabilities for their heirs.

We actively encourage giving, regardless of religious beliefs.Kusal Ariyawansa, Gerrard Private Wealth Management

Gallacher added that the Charity Lump Sum Death Benefit is often overlooked, but allows individuals to designate a registered charity as the recipient of a lump sum payment from their pension upon their death. 

He added: “This tax-free contribution provides a unique opportunity for posthumous charitable giving, supporting causes close to your heart while maximising the benefit to society.”

IFA Kusal Ariyawansa said the Payroll Giving scheme is another good way to donate as it allows people to pay from their wages directly through their employer. 

He said the payment is made before tax is applied, which means a £1 donation costs 80p, 60p, and 55p for basic, higher rate, and additional rate taxpayers, respectively.

Workers still pay National Insurance, but not income tax, on their donation. This can also apply to a donor’s pension provider if they run such a facility – meaning they can also donate straight from their pension income. 

Ariyawansa said although he encourages clients to give to charity, donors must ensure they have a safe stream of income beforehand. 

The chartered wealth manager at Manchester-based Appleton Gerrard Private Wealth Management, said: “We actively encourage giving, regardless of religious beliefs. After a wider discussion, nearly everyone wants to give more, once they understand their finances are safe and income stream will maintain their standard of living.” 

Ramadan started in March and involves Muslims fasting from dawn to dusk for around 30-days. It is also a renowned time of giving.

The Muslim Charities Forum has estimated that UK donors have given over £130mn to charity during the holy month during previous years. 

James Batchelor, chartered financial planner at Leeds-based Progeny, agreed that Ramadan is a big month of donating to charity. 

He added that under Islamic law, Muslims are not allowed to benefit from interest.

This is harder to avoid in the West, due to UK’s banking practices. This often means that Muslim clients give away this amount to charity.

He said: “There's no specific rule that Zakat (the obligatory 2.5 per cent of wealth that Muslims give to charity each year) has to be made during Ramadan, but it's generally believed that giving has more spiritual benefit if done during that month, so this is common.

"Muslims are forbidden to receive benefit from riba (interest), but this is harder to avoid in the West than in the Islamic world, due to how banking practices have developed over the centuries. Any such interest is therefore usually given away to charity as well as the Zakat, regardless of the time of year.”

Aamina Zafar is a freelance journalist