Are donor-advised funds a parking lot for philanthropy?

The debate in brief

A donor-advised fund (DAF) is a charitable giving account. The donor makes an irrevocable contribution to a sponsoring organisation — in the UK, typically the Charities Aid Foundation (CAF) — claims tax relief immediately, and then recommends grants to charities over time. The money is legally owned by the sponsoring charity, not the donor, but the donor retains advisory privileges over where and when it goes.

The problem is the gap between "claims tax relief" and "reaches a working charity." In the US, where DAFs hold over $251 billion in assets (National Philanthropic Trust, 2024), the average payout rate is around 22-24% per year. In the UK, CAF — the dominant provider — distributed a record £1.132 billion to charities in 2023-24, though smaller and less active accounts may accumulate for years before disbursement. Critics argue that deferred funds represent tax-relieved money sitting idle while charities face a funding crisis. Defenders say DAFs bring people into structured giving who would otherwise give less or not at all.

The arguments

DAFs as warehoused philanthropy

The central criticism is straightforward: the taxpayer subsidises a donation that may never reach a working charity. When a higher-rate taxpayer contributes £10,000 to a DAF, they receive up to £4,500 in tax relief (combining Gift Aid and higher-rate relief). That money is now technically charitable — it sits within a registered charity — but it may remain invested for years, generating management fees for the sponsoring organisation, while contributing nothing to the charities that need it.

The Law Commission's 2017 technical issues paper on charity law flagged the absence of any disbursement requirement as a potential concern, noting that funds held in DAFs could theoretically remain undisbursed indefinitely. In the US, the Institute for Policy Studies has repeatedly highlighted that DAF assets are growing faster than grants out, meaning the gap between tax-relieved contributions and actual charitable spending is widening. The same dynamic exists in the UK, though the data is harder to access because CAF is not required to report DAF-specific payout rates separately from its other charitable activities.

The sharpest version of this argument comes from critics who point out that during the cost-of-living crisis, charities reported record demand for services while billions sat in giving vehicles earning returns for their sponsors. The sector is, in effect, subsidising a savings account for philanthropy that operates on the donor's timeline rather than the beneficiary's need.

DAFs as an on-ramp to giving

Defenders argue that the relevant comparison is not between a DAF and an immediate donation — it is between a DAF and no donation at all. CAF's position is that its accounts help donors develop a giving habit, plan their philanthropy, and ultimately give more over their lifetime than they would through one-off gifts.

There is some evidence for this. CAF reported that it distributed a record £1.132 billion to charities worldwide in 2023-24, and the US data shows that most DAF accounts are not dormant: the average account makes multiple grants per year. Fidelity Charitable, the largest US DAF sponsor, reported a 24% payout rate in 2023, which exceeds the typical 5% minimum payout required of US private foundations.

The structural argument is also important. DAFs are simpler and cheaper than setting up a private charitable trust or foundation. For mid-level donors — those giving £10,000 to £500,000 a year — a DAF provides a tax-efficient vehicle without the administrative overhead of running an independent charity. Without this option, the argument goes, many of these donors would give less, less strategically, or not at all.

CAF also points to the role of DAFs in enabling tax-efficient giving at moments of liquidity — selling a business, receiving an inheritance, exercising share options — where the donor knows they want to give but has not yet identified recipients. The DAF lets them lock in the tax benefit and the charitable commitment while taking time to distribute thoughtfully.

The structural incentive problem

Even sympathetic observers acknowledge a tension at the heart of the DAF model: the sponsoring organisation's financial interest runs counter to rapid disbursement. CAF, like US sponsors such as Fidelity Charitable and the National Philanthropic Trust, earns fees on assets under management. The longer money stays in the fund, the more the sponsor earns. This does not mean sponsors actively discourage giving — CAF's grant figures suggest the opposite — but it does mean the business model does not structurally incentivise moving money out quickly.

This is compounded by the absence of any regulatory floor. US private foundations must distribute at least 5% of assets annually. No equivalent requirement applies to DAFs in either the US or the UK. Several US legislative proposals — including the Accelerating Charitable Efforts (ACE) Act, introduced in 2021 — have attempted to impose time limits or minimum payout rates on DAFs, but none has passed. In the UK, the question has barely entered policy debate.

The evidence

The data picture is incomplete, particularly in the UK. CAF's 2023-24 annual report shows total distributions to charities of £1.132 billion, with donations received of £1.155 billion. This implies a very high aggregate payout rate, though the figure includes CAF's own grant programmes and does not isolate DAF-specific disbursement.

In the US, where reporting is more granular, the National Philanthropic Trust's 2024 DAF Report found total US DAF assets of $251.5 billion, with $54.77 billion granted out in 2023. This represents a payout rate of approximately 21.8%, broadly consistent with the 20-25% range reported over the past decade. However, aggregate figures mask significant variation: some accounts are highly active while others lie dormant for years.

A 2020 study by the Boston College Center on Wealth and Philanthropy found that DAF donors gave more in total than comparable non-DAF donors, supporting the "on-ramp" argument. Critics counter that this reflects self-selection — people who open DAFs are already more inclined to give — rather than a causal effect of the vehicle itself.

NCVO's UK Civil Society Almanac has flagged broader concerns about the concentration of philanthropic giving among vehicles that lack transparency requirements. DAF grants can be made anonymously, meaning charities may not know the original source of funds. This intersects with wider debates about donor transparency and due diligence.

Current context

The UK has no specific legislation or regulatory framework governing DAFs. The Charity Commission regulates the sponsoring charities — CAF, the National Philanthropic Trust UK, and smaller providers — but there are no DAF-specific reporting requirements, no minimum payout rules, and no time limits on disbursement.

In the US, the debate is more advanced. The ACE Act, reintroduced in various forms since 2021, would require DAF contributions to be disbursed within 15 years or lose their tax-deductible status. The Community Foundation Public Awareness Initiative and the DAF Research Collaborative have both called for better data and greater transparency. None of these proposals has become law.

In the UK, the Law Commission's ongoing review of charity law reform has touched on giving vehicles but has not prioritised DAF-specific regulation. The 2023 DCMS select committee inquiry into charity sector resilience did not examine DAFs in depth. For now, the regulatory position remains: the tax relief is immediate and guaranteed; the charitable spending is deferred and voluntary.

Last updated: April 2026

What this means for charities

For fundraisers, DAFs are a growing source of grants — but a structurally unpredictable one. Charities receiving DAF grants often cannot identify the original donor, making relationship-building and stewardship difficult. The grant may come as a one-off recommendation rather than the start of a partnership.

Charities should understand how DAF grants work operationally. Grants from CAF accounts and similar vehicles are typically processed as grants from the sponsoring charity, not from the individual donor. This affects Gift Aid (which has already been claimed by the sponsoring charity on the original contribution), reporting, and donor communications.

At a policy level, charities and their representative bodies — NCVO, the Charity Finance Group, and others — have a stake in whether DAF regulation enters the UK policy agenda. The question is whether the sector wants to advocate for minimum payout rates or time limits, recognising that this could reduce the total volume of money flowing into giving vehicles, or whether it accepts the current model as a net positive despite its inefficiencies.

Common questions

How do donor-advised funds work in the UK?

A donor opens an account with a sponsoring charity, typically CAF. They make an irrevocable contribution — cash, shares, or other assets — and receive tax relief at that point, including Gift Aid reclaimed by the sponsoring charity and any higher or additional rate relief claimed by the donor. The donor then recommends grants to registered charities from their account over time. The sponsoring charity has legal discretion over grants but in practice follows donor recommendations in almost all cases.

Do UK donor-advised funds have a minimum payout rate?

No. There is no legal or regulatory requirement for DAF holders or sponsoring charities to disburse any specific percentage of funds within any timeframe. This contrasts with US private foundations, which must distribute at least 5% of net investment assets annually. The absence of a payout floor is the central point of contention in the DAF debate.

What fees do DAF providers charge?

Fee structures vary. CAF charges an annual management fee on its charitable trust accounts, typically around 1% of assets, plus underlying investment management fees. US providers charge similar rates: Fidelity Charitable charges 0.60% on the first $500,000. These fees mean that sponsoring organisations have a financial interest in retaining assets under management, which critics argue creates a structural misalignment with the goal of moving money to working charities.

Can DAF grants be made anonymously?

Yes. Donors can choose to have their grants passed to charities without identifying information. This is a legitimate feature for donors who prefer privacy, but it raises transparency concerns — particularly when large anonymous grants influence charity strategy or when the original source of funds is unclear. It also makes it harder for charities to steward donors and build long-term relationships.

Are donor-advised funds replacing direct charitable giving?

The evidence is mixed. US data from the National Philanthropic Trust and Giving USA suggests that DAF contributions have grown while overall individual giving has declined as a share of GDP, but establishing a causal relationship is difficult. In the UK, total individual giving has stagnated in real terms over the past decade (CAF UK Giving Report), but it is not clear whether DAFs are diverting gifts that would otherwise go directly to charities or capturing new giving that would not otherwise occur.

Who uses donor-advised funds?

DAFs are primarily used by higher-income and higher-wealth individuals. In the US, the average DAF account size is approximately $180,000 (National Philanthropic Trust, 2024). In the UK, CAF's charitable trust accounts are typically used by donors giving upwards of £10,000 per year, though CAF's Charity Account is available for smaller amounts. DAFs are also increasingly used by companies, family offices, and financial advisers as part of wealth management and tax planning.

Key sources and further reading

• CAF Annual Report 2023-24 — Charities Aid Foundation. Reports on charitable distributions (a record £1.132 billion in 2023-24), assets under management, and grant volumes from CAF accounts and charitable trusts.

• 2024 Donor-Advised Fund Report — National Philanthropic Trust. The most comprehensive annual overview of the US DAF market, including assets, contributions, grants, and payout rates.

• Technical Issues in Charity Law — Law Commission, 2017. Identifies the absence of DAF disbursement requirements as a potential area for reform in the broader context of charity law modernisation.

• Accelerating Charitable Efforts (ACE) Act — US Senate (introduced 2021). Proposed legislation to impose time limits on DAF disbursement and restrict the tax deduction for contributions to non-distributing DAFs.

• UK Giving Report — Charities Aid Foundation, published annually. Tracks individual charitable giving in the UK, providing context for whether DAFs complement or substitute direct giving.

• UK Civil Society Almanac — NCVO, published annually. Broader data on the voluntary sector's income sources, including philanthropic giving vehicles.

• Gilded Giving: Top-Heavy Philanthropy and Its Risks to the Independent Sector — Institute for Policy Studies, 2018 (updated). Analysis of the growing share of US philanthropy flowing through DAFs and private foundations rather than directly to working charities.

• Fidelity Charitable Annual Report 2023 — Fidelity Charitable. Reports on grant volumes and payout rates from the largest US DAF sponsor, often cited in arguments that DAFs actively distribute funds.

• Philanthropy and tax incentives — Pro Bono Economics. Analysis of whether tax relief for charitable giving achieves its intended policy goals, relevant to the DAF tax relief debate.