How to start a DIY charity Want to be a philanthropist? Setting up your own charitable trust may be a lot easier and cheaper than you think
Sunday 18 December 1994
Perhaps surprisingly, there is no minimum capital or income requirement to create a DIY charity. "Anybody could do it - there's no financial barrier to entry," says Clare Maurice, a partner with City solicitors Allen and Overy and the author of a bookleton charity trusteeship. "Realistically, you probably wouldn't go to the trouble of setting up a charity for a modest amount of money," she adds.
Nevertheless, two-thirds of registered charities have annual incomes below £10,000. So could a few thousand pounds be enough to get started?
"If you are just interested in giving money to charity, there are over 170,000 registered charities to choose from. But it doesn't necessarily cost very much to set one up," says Pesh Framjee, head of the charity unit at BDO Binder Hamlyn. "I've set up charities that initially had no money at all."
Charities can be established as registered companies, unincorporated associations or - the most likely option for individuals - as trusts under the control of the appointed trustees. The Charity Commission likes to see at least three trustees, but there is nothing to stop the person creating the trust from being one.
Members of the family or friends can be roped in as well. However, once appointed, a trustee's legal duty is to ensure that the trust meets its charitable objectives. This clearly precludes doing favours back to other family members. "It can be quite an onerous task to be a trustee, more than many people contemplate. Trustees have personal liability for their actions," Ms Maurice says.
Trustees are bound by the aims as set out in the trust deed, which must meet one or more of the four basic charitable objectives: the relief of poverty, the advancement of education, the advancement of religion, or the benefit of the community. Some apparent good causes - ranging from Amnesty International to funds helping individual victims of accidents - may not qualify.
The Charity Commission acts as gate-keeper to the sector, and would-be new charities have to complete a rigorous 15-page questionnaire at an early stage of the application process. (In Scotland, monitoring of new charities is undertaken by the Inland Revenue).
However, the Commission has helped by producing a free model trust deed that charities can adapt to their own use. This means that high solicitors' fees are not essential.
"I helped a small charity in my area that had been charged £800 by a solicitor for its deed, but when I looked at it, it was the Charity Commission model word-for-word," said one charity specialist.
`Once established, there is also the on-going work of administering the charity. This could involve sorting out tax refunds from the Revenue for covenants or Gift Aid donations. It could also mean dealing with the begging letters. "The moment the name ofthe charity goes on the register you can start to receive letters," Ms Maurice says.
The Charity Commission's annual requirements are due to change next year, but smaller charities will be subject only to a "light touch" regime and will not have to submit accounts.
But if running your own charity does not have to result in large bills from professional advisers, settling money in a new charitable trust needs care. Mr Framjee points out that with full tax relief normally available through Gift Aid on donations over £250, it is usually better to give money rather than company shares or property. "Lots of people believe it's better to gift assets when they're setting up a trust, but they're ill-advised."
Even if capital gains tax has to be paid when assets are liquidated, the Gift Aid rebate normally more than covers the tax deducted, he says.
Given the existence of tax relief on Gift Aid donations and charitable covenants, the question, perhaps, is why anyone would want to go to the trouble of the DIY charity approach. "It depends on how egotistic you are," one solicitor says. "People want toplay at being mini-gods," says another. The prospect of philanthropic immortality - assuming the trust has enough money to survive indefinitely - may be an additional factor.
But there is clearly another reason. "People do get enormous pleasure and a great sense of achievement from being trustees. If you get the right people together as trustees, it can be very exciting," Ms Maurice says.
The outline `Guide to Charitable Giving and to Establishing Charitable Gift Trusts' comes with specimen trust deeds and costs £40. From Investment and Tax Publishing Services, 31 Aylesbury Road, Bedford MK41 9RJ.
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