Do wealthy UK trusts hoard their charitable donations in order to avoid paying taxes?

According to a think tank analysis, UK charitable foundations that have assets totaling more than £12bn only give away a fraction of their assets to worthy causes every year.

Pro Bono Economics conducted exclusive research that identified hundreds of grant-making foundations and trusts (GMTFs), such as the Eranda Rothschild Foundation and Mikhail Khodorkovsky.

According to the analysis, if GMTFs donated 3 percent or more of their assets each year, they would be able to generate an extra £300mn for charitable causes.

The PBE was founded by Andy Haldane, a former Bank of England economist. Nicole Sykes is the director of policy.

Since long, both the government and Charity Commission, which regulates the sector, have been under pressure to introduce a minimum distribution rate annually for charitable organizations.

The UK does not have a mandatory target. Countries like the US, Canada and Australia demand that charities give away 5 percent of their assets every year.

According to the Association of Charitable Foundations (a membership group of foundations and independent grantmakers), the analysis examined the income and assets of 300 of the UK’s largest foundations.

PBE estimated that this group collectively held investments worth over £87bn by 2020-21. PBE reported that the foundations which gave away the least had assets totaling £10.2bn and spent only £95mn.

The “least generous foundations” between 2018 and 2020 held assets averaging £12.2bn, but distributed only £131mn.

As the cost of living continues to rise, households are increasingly turning to charities for help to fill in the gaps left by local services. This includes food banks and mental health services.

The Charity Commission stated: “Many wealthy individuals in the country give through foundations. We have asked those with deepest pockets for more, as many households are facing financial strains and turning to charities to help them.”

So far, the charitable sector has resisted reforms to distribution rules. A spokesperson for the Department for Culture, Media and Sport said that there are currently “no current plans” to introduce capital expenditure requirements for foundations.

Carol Mack, the chief executive officer of ACF, said that “introducing minimum payout ratios to the UK in the UK context is a bad idea”.

She said that the ceiling would act more as a floor than a ceiling, since foundations wouldn’t be willing to spend above the minimum without assurances they could rein in their spending in the future if necessary.

The research covered high-profile trusts, including the Eranda Rothschild Foundation which is focused on enhancing opportunities in education and arts.

In 2021-22, it had assets of £144mn. It awarded grants totaling £738,000 – a 0.5 percent share of its assets. The foundation was founded in 1967 by Sir Evelyn de Rothschild who died in 2022. “In the years immediately preceding his sad passing given the global pandemic and his age there were understandably fewer trustee meetings than usual,” a spokesperson for the foundation said.

The amount of grants made was less than the historical average. “The trustees anticipate that the grant level will rise in the future,” said the person.

The report also highlighted Khodorkovsky Foundation. It was founded in 2003 at the initiative of Mikhail Khodorkovsky. He is a Russian oil magnate and one of Vladimir Putin’s most prominent adversaries. The charity held assets of £564mn and awarded grant funding worth £15mn in 2022.

Alastair Tulloh, a Khodorkovsky Trustee, stated that the Russian Government’s designation of Khodorkovsky Foundation as an “undesirable organization” in July 2021 had impaired its grant-giving activity. The project’s activities were halted in Russia “for an indefinite time” and the Trustees “had to refocus their grant-giving outside of Russia, until the foundation can resume its activities in Russia”.

Lord Jeff Rooker of Labour, a former House of Lords charity committee member, proposed in 2016 that charitable trusts be required to donate at least 1,5% of their annual income to worthy causes. The ACF rejected the proposal.

The group argued that such an attack on trustees’ independence to decide the best way to use their funds ignores the importance individual charitable missions, attitudes to longevity and the market context.

Charles Keidan is the executive editor of Alliance magazine which covers the sector of philanthropy. He estimated that a spending requirement of five per cent of the assets of a charity would unlock £1.3bn in total for UK good causes.

He said that there is a conservatism among foundations in the UK when it comes to forcing them to give. But without compulsion, incentives and encouragement are unlikely in order for the level of giving in the UK.

The analysis did not include the Wellcome Trust because of its size. This would have distorted the data.

Becht Family Charitable Trust is the 25th largest foundation in the UK. It supports projects that support marine biodiversity and climate changes. In 2021, its assets were valued at $536mn. The trust only awarded $8.8mn in grants that same year.

According to its analysis, the company spent $1mn per year managing investments. This generated $3.8mn of income and $73mn of capital appreciation.

According to a spokesperson from the Becht Family Charitable Trust, the foundation’s net asset value in 2022 will be $440mn and its total grants in 2022 will be $9.4mn. Grants have increased in 2022 by 2.1 percent of the net assets compared to 1.6 percent the year before.

The foundation also said that it had carried out a strategic review that was in-depth in 2019, which led to it moving into the “marine biodiversity and climate change communication space”.

They said that as more organisations became available for support, “we will continue to increase our donations” to help them.

The study found that over 100 charitable foundations with a history of five years or longer failed to distribute at least 2 percent of their assets from 2016 to 2021.

In 2021, the Kusuma Trust UK had assets of £510mn. The Trust awards grants to people and organisations “making a difference in society”. In the same year it spent £5mn, of which £3mn went to running the charity and £2mn was allocated as grants.

It donated £5,000 (£4,500) to the British Library for a Paddington Family Day. The Trust declined comment.

A government spokesperson stated that “the trustees of charitable trusts or foundations who make grants are the best-placed to determine strategies which will deliver on the charity’s goals both now and into future.”

There are rules in place that prohibit charities from accruing income without a good reason over time. However, there are no plans for capital expenditure requirements.

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