Mark Barnes

Smart Legacy Giving

I have recently taken the Giving What We Can 

 and in doing so I have been looking into efficient ways of donating money to charity. Giving What We Can have a very helpful page on their website detailing the 

 of charitable giving. However, I recently had cause to change my Will and in doing so I found a very tax-efficient way to give. The effect is that 

some UK taxpayers can quadruple their donation to charitable causes, through Will giving, at no cost to themselves.

Here’s how it works. Usually an estate pays inheritance tax of 40% on the ‘net value’ of the estate. The ‘net value’ is the value of the estate after deducting for debts, liabilities, reliefs, exemptions (e.g. anything left to spouses) and anything below the inheritance tax threshold (which the government has just raised). However the UK government incentivizes individuals to give in their Wills. If 10% of the ‘net value’ of the estate is left to charity then the estate only pays 36% inheritance tax. Thus for example if the ‘net value’ of the estate is £100k then usually £40k is paid in tax and £60k can be bequeathed to beneficiaries. However, if the Will states that £10k should be given to charity then the remaining estate is taxed at 36%, which results in £32.4k being paid in tax and £57.6k going to beneficiaries. Hence by reducing the benefit to one of your beneficiaries by £2.4k, you can give £10k to effective charities. Thus, if you qualify for inheritance tax, you can effectively quadruple your effective giving by changing your Will to donate 10% to charitable causes.

| Net Value of Estate | £100k | £100k | | Left to Charities | £0 | £10k | | Inheritance Tax Rate | 40% | 36% | | Inheritance Tax Paid | £40k | £32.4k | | Left to Beneficiaries | £60k | £57.6k |

There is however a caveat to this. By giving £10k to charity you are also reducing government receipts by £7.6k and so you must make sure that you are doing more good than the government would otherwise be doing with those receipts. I suspect that Giving What We Can members should be able to convince themselves that by giving to recommended charities, which can save a life for around £2.5k, they are in fact satisfying that requirement.

Finally, it may well be the case that many of you do not have estates that would attract inheritance tax. Only about 3 to 5% of estates do. However, even if you would not qualify for inheritance tax, it may be the case that your parents would. If they intend to leave money to you, and you intend to leave that money to effective charities, it would be significantly more effective if they left it directly to the charities on your behalf. Thus instead of receiving £2.4k as a beneficiary of the Will, you would be donating £10k to effective charities and therefore quadrupling the good you could do. It may be a difficult conversation to have with your parents, but it could also be very beneficial. I have changed my Will accordingly and intend to have that conversation with my own parents shortly.

My Journey to Taking the Giving What We Can Pledge

I am a new member of Giving What We Can and I would like to share with you the experiences that led me to taking the Giving What We Can 

I was born at Junction 10 of the M1, and raised in the suburban middle class commuter districts of northern London. I was fortunate with my schooling and ended up going to university to study maths. In my final year at university, I applied for a variety of jobs: the civil service, teaching, consultancy, and banking. It was a random voyage of discovery at a time when career advice was limited.

I had applied for corporate banking at NatWest, but they astutely decided to place me elsewhere. I found myself ensconced in the capital markets division of what would later become RBS. The big bang in the City of London had occurred in 1986 and deregulation was sweeping across the square mile. Old ways of long city lunches and promotion by nepotism were disappearing. The new crowd was young, keen and energetic. They were trained in maths, physics and engineering and armed with mathematical models and new technology.

I was one of those people and I set about modelling and pricing FX option products. I progressed from quantitative analyst to options trader, a year or two later I was setting up and running the desk in New York, within six years I was a senior options trader and after ten I was running the FX Options business.

This was the start of the most rewarding part of my career. RBS and the city offered an immense amount of freedom and responsibility for someone my age. As success came, so did resources. We built new products, new systems and new models at a bewildering pace. Financial success followed. I was a child of Thatcher and the primacy of markets was my morality.

Then the financial crisis struck. Markets were thrown into turmoil and governments had to bail out failing institutions. RBS reported serious losses, and required a massive bailout by the government.

The failure of RBS forced me to question my beliefs. My disillusion with the industry as a whole began to grow. A system built on the ideology of free markets and meritocracy was becoming anything but. Bailout after bailout occurred and still large bonuses were paid, relying on the taxpayers’ dollar and central banks liquidity. I found myself reaping the benefits of a flawed system and asking myself what it was all for. I found myself working for an industry I had lost faith in and earning money that I did not deserve. My position seemed untenable and I resigned in early 2010.

RBS generously offered me a 1-year sabbatical, which I grasped with both hands. I now had a year to try and gain some meaning from the wreckage of much of my belief structure. I asked friends to recommend books that would make me think about life differently. I received a variety of recommendations from Herman Hesse to Hunter S Thompson, from Milton Friedman to Jared Diamond. It is still unclear whether the individual who proposed the 1200 pages of Nigel Lawson's View From Number 11 was really friend or foe. But I read them all.

Within the pages of these books I was trying to find the person I wanted to become. In the process, I found a desire to redistribute some of the undeserved gains I had accrued. But how should I redistribute them? Perhaps I should return those undeserved gains to RBS? But in that case the money may find its way back into the bonus pool to be redistributed again. Perhaps it would do more good if I returned the money to the government: for it was the taxpayer that had bailed out the institution I had been paid by. But then it occurred to me that it might be possible to do more good than that and not only should I do more good, I should do the most good. But how? I was not even sure what doing the most good meant.

Clearly, the most good that could be done by donating would be in the poorest and cheapest places on earth. This meant focusing on helping the lives of those in sub-Saharan Africa. But which organization should I give to? There was a bewildering array of choices and it seemed impossible to choose between them.

Then I read 'The End of Poverty’ by Jeffrey Sachs. He argued that there exists a poverty trap. This poverty trap exists because poor individuals do not have enough basic means by which to escape a continued life of poverty. He suggested that by holistically providing these means, across a number of interventions, it would be possible to lift poor individuals out of that trap and onto a path of self-sustainable development. He proposed testing this theory on a handful of villages throughout sub-Saharan Africa through the Millennium Promise charity, and argued that if successful it could be scaled up across the continent. I found his enthusiasm for the tractability of global poverty exciting, his solution feasible and his focus on economics and scientific innovation appealing. I was enticed by the concept of delivering aid to the world’s poorest individuals with self-sustainable development as a goal. Convinced, I committed to donating to this project for the next 5 years.

Just as banking must reinvent itself in response to the financial crisis, I wanted to reinvent myself in response to my own moral crisis. I wanted to start a new chapter in my life and I needed some foundation upon which to do so. After returning to RBS for a year, I applied and got accepted into LSE to take a course in Philosophy and Public Policy. I found myself convinced by the preference utilitarian arguments defended by Peter Singer and armed with better philosophical arguments and a more coherent moral framework, I set about embedding these arguments within my life decisions.

My Millennium Promise commitment had come to an end in early 2015. It had not worked out quite as I had intended. The results were patchy and the outcomes of the project difficult to measure. Self-sustained development had been unobtainable in the time frame envisaged. It was clear to me that not all aid had the same impact and that there was a vast difference between the results of different types of interventions. My first attempt to be an effective altruist had met with only limited success.

Fortunately, in the intervening 4 years, individuals, with greater vision than I, had set up organisations designed to answer the question of how to give effectively. These institutions (such as GiveWell and Giving What We Can) looked directly at the welfare gains that individuals receive from each $ donated to a given charity. They calculated that the best charities could save lives for as little as £2,500.

The presence of these organisations along with the low cost of being able to make such a large difference made me significantly more confident of the impact of my donations. This increased my desire to give. So earlier this year I took the Giving What We Can pledge to donate 10% of my future earnings to the organisations that most effectively improve the lives of others.

However, my personal situation is slightly different than many members of Giving What We Can. My best earning years may well be behind me. Thus I have pledged to give 10% of my lifetime earnings to these effective charities. And I will endeavour to do better than that. The immense benefits that some of the money I have earned can bring to individuals in poorer countries far outweigh the cost of having less money myself. In fact, the decision to donate 10% of lifetime earnings to the poorest people on the planet has come at no cost at all, for it has made me happier and given my life greater meaning.

While I am still uncertain where the next few years will lead me and what career I will pursue, I feel confident I have begun the next chapter of my life and I am certain that taking and honouring the Giving What We Can pledge will be integral to it.

Mark Barnes

Articles

Smart Legacy Giving

My Journey to Taking the Giving What We Can Pledge