Hello, I'm interested in people's views and directions to resources about whether it seems better to invest to donate or to donate now and obtain tax relief from the UK Gift Aid scheme, which effectively pays back the income or capital gains tax paid on donated money.
The question is at what bands of tax relief would it make more sense to donate now than to invest and donate later, for each of the cause areas global health/development, animal welfare and longtermism? Any views on any of those areas would be useful.
Some more notes:
Through Gift Aid, a basic rate taxpayer gets a "return" of 25%, a higher rate taxpayer 67% and an additional rate taxpayer 82%. Whilst it seems that in the USA people could donate to a donor advised fund to invest and still get the tax relief, this doesn't seem to be viable in the UK for non-huge donors (e.g. as discussed here). So Gift Aid is rather use-it-or-lose-it in character. (Though there is the Patient Philanthropy Fund for supporting longtermist causes - but I'm also interested in other cause areas, and I'm not sure about paying into an organisation's fund.)
The question of whether or not to invest funds to donate later has been explored in several places. E.g. this Founders Pledge report estimated the expected impact of investing funds in the stock market and donating them after 10 years to be 9x that of donating now for longtermist causes, 2.1x for global health and 4.2x for animal welfare (though the pdfs were very skewed and median impact ratios for global health and animal welfare were a lot lower at 1 and 1.7 respectively). Philip Trammell's report also goes into a lot of depth and argues for investing rather than donating now for people who value all times equally. There are quite a few more articles I've looked through in the Timing of philanthropy and Patient Altruism Forum topics.
The Founders Pledge report seems to suggest it would be worth delaying donations in expectation for all causes for any tax relief band - but I'm wary of putting a lot of emphasis on one report, and also you get the opposite answer if the most probable results are used for global health and for higher/additional rate taxpayers for animal welfare. Other articles don't seem to quantify how much better investing and delaying donating would be, so I can't see at what level of tax relief it makes sense to donate now.
Thanks very much if you can help.
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Great question!
One can claim Gift Aid on a donation to the Patient Philanthropy Fund (PPF), e.g. if donating through Giving What We Can. So a basic rate taxpayer gets a 25% "return" on the initial donation (via gift aid). The fund can then be expected to make a financial return equivalent to an index fund (~10% p.a for e.g. S&P 500).
So, if you buy the claim that your expected impact will be 9x larger in 10 years than today, then a £1,000 donation today will have an expected (mean) impact of £11,250, for longtermist causes (£1,000 * 1.25 * 9)[1]
Therefore I think the question of:
"donate now and claim gift aid" OR "invest then donate later"
...can be reframed as:
"donate now and claim gift aid" OR "donate to (e.g. PPF) now and claim gift aid, for the PPF to invest and then donate later"
(I.e. I think gift aid considerations don't favour one option over the other)
Of course, one may reasonably disagree on giving now vs giving later - this is a much more messy question, and one that I won't attempt to answer here.
I'm not sure about paying into an organisation's fund.
I think that conditional on giving later, the PPF is a better option than individually taking an "investing to give" approach (roughly for reasons described here)
(disclaimer: I work on the operations side of the PPF)
- ^
A £1,000 donation becomes $1,250 for a basic rate taxpayer. Over 10 years, expected impact will increase by 9x (using the Investing to Give report model's mean estimate)
Using the same logic for global health or animal welfare, your expected (mean) impact from a £1,000 donation in 10 years would be £2,625 (£1,000 * 1.25 * 2.1x) and £5,250 (£1,000 * 1.25 * 4.2x).
Note however that no "PPF equivalent" for global health or animal welfare currently exists, AFAIK
Thanks for raising this question!
One consideration I'd add that I don't yet see reflected in your post or in the comments is that it could very well be that there will still be some sort of tax relief when you give later (and that it could even be larger at that point!), so tax relief may inform the giving now vs giving later question less than it may seem at first sight.
It's possible there is reasonable case to be made that tax relief on money donated later is going to be (much) lower in expectation than on money donated now (e.g. perhaps the current system priviliges small yearly donations over large single ones, or perhaps there are longer-term downward trends in policy around tax relief), but that case needs to be made in order to make the claim that current tax relief systems push (strongly) in the direction of giving now.
(I don't know much about this at all, but FWIW my best guess would be tax relief for an individual giving later will be slightly lower in expectation than for an individual giving now, which would push slightly - but only slightly! - in the direction of giving now)
Thanks very much for answering Sjir. I'm not sure why having tax relief on future income would change the answer to what to do with this year's income a lot, unless one were not going to donate future years' income - else, the tax relief on future income is used up by donating that income. Of course, it may be possible to use relief on future income that would not counterfactually get donated (that needed for living expenses, saving etc.), so in that case you're right that the return from tax relief for donating now vs later is less than I said for that po... (read more)
Very interesting question!
I don't have that much to add, it seems like you've got a pretty good handle on the different options available. Though a couple of things:
- That DAF post you linked to is a bit out of date (I keep meaning to write an updated version!), since the CAF DAF now charges 1.2-1.5% on balances up to £100,000 (and less above that), with a minimum balance of £10,000-£25,000, so is a more viable option even if you aren't a mega-donor
- ISAs are still a ridiculous vehicle, you can put £20,000 in per year, and be exempt from capital gains, stamp duty, dividend tax etc forever on that money (today is the last day of the tax year so fill your ISA today for this year's allowance!). Though you do contribute from your post-tax income.
Just thought I'd note that I checked again and the CAF DAF's minimum balance has gone up to £25k and has a minimum fee of £600/ann.: https://www.cafonline.org/individual-trust-supporting-documents
That's very useful to know about that DAF, thanks.
ISAs are a nice tax break, but only save the capital gains tax, so not as beneficial as Gift Aid.
I would say you should just donate it now. Gift Aid is just very efficient, and we have plenty of effective interventions in all these areas to do now.
For x- and s-risk and global development (areas that benefit from research and can accumulate knowledge) the time of highest leverage is plausibly now, and the earlier the better.
The report you link says that the largest cause of later cost-effectiveness is "exogenous learning", i.e. research that happens regardless and makes marginal interventions more effective. If that is the case, why not invest in the learning itself, to make effective interventions for everyone appear closer in time?
I'm less sure about animal welfare. Research affects it somewhat but it's mostly advocacy, and I'm not sure how that accumulates over time. I think you should give now too.
Thanks Adria. Are there good resources on investing in learning in the different cause areas, and how it compares to donating to do direct work?
Great question!
One can claim Gift Aid on a donation to the Patient Philanthropy Fund (PPF), e.g. if donating through Giving What We Can. So a basic rate taxpayer gets a 25% "return" on the initial donation (via gift aid). The fund can then be expected to make a financial return equivalent to an index fund (~10% p.a for e.g. S&P 500).
So, if you buy the claim that your expected impact will be 9x larger in 10 years than today, then a £1,000 donation today will have an expected (mean) impact of £11,250, for longtermist causes (£1,000 * 1.25 * 9)[1]
Therefore I think the question of:
"donate now and claim gift aid" OR "invest then donate later"
...can be reframed as:
"donate now and claim gift aid" OR "donate to (e.g. PPF) now and claim gift aid, for the PPF to invest and then donate later"
(I.e. I think gift aid considerations don't favour one option over the other)
Of course, one may reasonably disagree on giving now vs giving later - this is a much more messy question, and one that I won't attempt to answer here.
I think that conditional on giving later, the PPF is a better option than individually taking an "investing to give" approach (roughly for reasons described here)
(disclaimer: I work on the operations side of the PPF)
A £1,000 donation becomes $1,250 for a basic rate taxpayer. Over 10 years, expected impact will increase by 9x (using the Investing to Give report model's mean estimate)
Using the same logic for global health or animal welfare, your expected (mean) impact from a £1,000 donation in 10 years would be £2,625 (£1,000 * 1.25 * 2.1x) and £5,250 (£1,000 * 1.25 * 4.2x).
Note however that no "PPF equivalent" for global health or animal welfare currently exists, AFAIK