Inheritance tax: the opportunity for charities

Three recently published articles should interest charities specially those who depend on legacies for survival.

The first was an article in the London Standard of Tuesday June 10 and concerned Britain’s millionaires. According to Lucy Tobin, there are 513,000 households in the UK which have been identified as worth one million dollars or more. Of these 1044 are very wealthy with assets of over 100 million dollars.

In the same issue in another article, Lucy Tobin discussed the benefits of leaving money to Charities in your will. Apparently there is a significant tax advantage, in a reduction of inheritance tax, if you bequeath 10% or more of your assets to Charities. Money left to Charities is of course tax exempt but the tax paid after this and tax-free allowance by beneficiaries also drops from 40% to 36%.

An example highlights this advantage.

Assume you have assets of £1,325,000 in your estate when you die. Excluding The IHT allowance of £325,000, there is £1,000,000 for which tax is due.

If no money is left to a Charity, inheritance tax of £400,000 will have to be paid leaving £600,000 for the beneficiaries. Plus of course the tax-free allowance of £325,000.

If however 10% of the estate is provided for Charities, then in addition to them benefiting by £132,500, inheritance tax at 36% will be paid on £867,500, totaling £ 312,300, leaving £555,200 to the beneficiaries. Plus the tax-free allowance of £325,000.

In other words your generosity of awarding £132,500 to good causes is only costing your other heirs £44,800.

This surely is an opportunity that should be promoted by Charities?

Andrew Papworth publishes Harvest, a monthly newsletter and in the June issue writes about baby boomers. He states that the time to approach them about possible bequests is now, since they will begin the journey to the “unknown land” soon. People born between 1946 and 1966 will die between 2017 and 2046. Their wills probably drawn up between 1997 and 2026.

Only 37% of all adults have made a will and the numbers rise slowly as we get older. 36% of adults currently between the ages of 45 to 54 have, 58% of adults aged between 55 and 64 years have also made a will and the proportion rises to 79% for those over the age of 65.

And Andrew says: time is running out if you plan to approach the baby boomers for legacies.

The acquisition and retention of donors

One of the biggest challenges facing Charities today is the growing reluctance of new donors to provide contact details. They know that if you know where they live, you will undoubtedly send letters asking for more help.

Direct mail accounts for nearly three quarters of all advertising spend and is justified by its relative level of returns. Donors are gauged by the lifetime value because the return on above the line advertising investment is usually much less than the initial spend. One large charity averages an almost immediate return of 30% on its conventional advertising spend and without the possibility of further attributable donations has to find other justification for continuing the process. Awareness building is one. However since the overall aim is attracting more regular donors, list building remains a priority.

When advertising in conventional media like the press, usually the most cost efficient after Direct Mail, consider asking permission to stay in touch with donors. Thank the reader for the time spent and always say please. Promote your cause and stress the urgency behind your appeal. New donor acquisition will be difficult so the more attention paid to the copy and coupon the better. Enlisting the support of well-known people with a vested interest helps. And don’t waste money even in justifiable media if your appeal is placed where it will not be seen. Many charity ads are buried in advertising ghettoes, which encourage the turning of the page.

After acquisition of donors, retention is very important. You have already segmented your list to make your mailing programme more effective. Some donors will only want to be mailed once a year, others are happy to be approached more often.

The sort of residential neighbourhoods they live in can identify valuable donors and the Royal Mail will help you appeal to their neighbours.

Then have a direct response expert like Drayton Bird audit your mailing package. He is probably the best marketer equipped to make the improvements to retain donors and improve their responsiveness. 

Campaign Magazine named him one of the fifty most important individuals in UK advertising during the previous twenty-five years. 

David Ogilvy also rated him highly and he wasn’t one to scatter praise. 

Contact Drayton directly: Drayton@draytonbird.com