Philanthropy’s fastest-growing giving model: donor-advised funds explained

When clients hit a financial milestone or the end of the tax year is approaching, conversations can turn to giving and legacies. Understanding the power of a donor advised fund (DAF) will stand you in good stead. 

Philanthropy has the ability to create real meaning for clients and for the causes they care about. However with increasingly tighter regulation and growing legal responsibilities, giving responsibly has become more complex. 

For many clients looking to structure their giving, DAFs have emerged as a swift, tax-efficient and trusted solution to navigating this landscape.

Markets on the rise 

DAFs are already well established in the US with $326bn in assets and $64.9bn granted to charities in 2024 alone, according to the DAFRC Annual DAF Report. The UK market, while smaller, is growing at an annual rate of 13.2% and following a similar trend. 

What is a donor advised fund? 

A DAF offers donors an alternative to setting up their own standalone foundation and allows them to gift assets – usually cash, shares and property, all of which come with UK tax benefits; 

• Donors can make contributions to the DAF at any time and claim related charitable tax relief.
• Donors can invest funds with their chosen investment firm so the charitable pot can continue to grow.
• The DAF provider oversees the compliance, governance, due diligence and financial administration.
• The donor can focus on the joy of giving. 

The value of DAFs is becoming increasingly recognised. For clients who want to give significant amounts over a number of years – without the administrative burden of establishing a charity – they are hugely appealing.

Making tax-effective giving simpler 

There are well-established tax incentives for charitable giving – whether through cash, shares, property, cryptocurrency or art. 

• Gifts of cash can benefit from Gift Aid, meaning the donation amount can increase by 25% at no extra cost to the donor. In turn, if the donor is an additional tax rate payer, they may be eligible to claim a further 25% on the gross donation in their tax return.
• Gifts of shares are free of capital gains tax, and eligible donors can then claim back the relevant income tax relief.
• When it comes to legacy planning, leaving at least 10% of an estate to charity can reduce the rate of inheritance tax on the remainder from 40% to 36%. 

A DAF can accept all of these asset types, helping donors manage complexity while focusing on the causes they care about. For those who have recently experienced a significant liquidity event – such as a business sale or inheritance – a DAF can provide both a powerful long-term giving structure and meaningful tax efficiency. 

Giving globally, with confidence 

Philanthropy is increasingly international. Families are more mobile, charities operate across borders, and donors often want to support causes beyond the UK. Specialist DAF structures – including those designed for individuals with tax exposure in both the UK and the US – make it possible to give across different countries simply and compliantly.

Engaging the next generation 

Many families also want younger members to feel involved in giving decisions, rather than simply inheriting a legacy. Shared giving is becoming more common – often operating as collective funds within a DAF structure. Even where families already have their own foundations, a DAF can provide a practical way to involve the next generation. 

Conversations about philanthropy build trust 

Philanthropy used to be seen as something to be dealt with separately from wealth management; this is no longer the case. Client wealth decisions are increasingly led by the desire to create meaning and define their legacy, not just financial performance.

About Prism 

At Prism we work alongside advisors to support their clients philanthropic giving. Contact us to discuss how a DAF could support you. 

Elena Camilla Myers T: +44 020 7486 7760 E: Elena@PrismtheGiftFund.co.uk