With the festive season approaching many of you will have started your Christmas shopping, but gifting doesn’t just need to be about what you leave under the Christmas tree. With recent news suggesting that the Government plans to increase the current CGT rate to reduce the national debt caused by the pandemic, this year may be the perfect time to look at gifting shares and investments for Inheritance Tax (IHT) and Capital Gains Tax (CGT) purposes.
If you make a gift of stocks and shares or sell them to make a cash gift, and their value has increased since they were acquired, Capital Gains Tax may be chargeable if the gain exceeds your annual allowance of £12,300. However, if the stocks and shares have fallen in value you can transfer them and not have to pay CGT in the hope that they will in time increase in value for the gift recipient.
Given the unusual year we’ve had, the performance of stocks and shares will vary between industry. The hospitality and travel industries for example are some of the hardest hit whilst e-commerce and pharmaceuticals are thriving. Markets are constantly changing, and there is no guarantee that struggling industries will rebound fully in the short term, but over the long term you would expect the value would recover.
The loss in value may mean there is no CGT but there may still be an Inheritance Tax implication. You can currently give away up to £3,000 worth of gifts in each tax year for IHT purposes, without it being added to the value of your estate.
If you are feeling particularly generous, you can give more than your personal allowance. Provided that you survive for seven years from the date of the gift, the gift will not be included in your estate for IHT purposes, which makes for some serious Inheritance Tax planning.
Christmas is also the time when our thoughts turn to those who may be less fortunate than ourselves and we look to help good causes. Gifts to charities are exempt from IHT, so there are no adverse effects to giving generously.
Whatever you do decide to do it is important that professional financial and legal advice is taken to understand the various allowances and exemptions.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.