The right time to pass on wealth?

It’s difficult to think of many positives resulting from the current situation, but the drop in financial markets and investment values may offer a golden opportunity for parents and grandparents to pass on wealth to the next generation tax efficiently.

Making gifts is a priority for many who want to help their families during their lifetimes, and see the benefit of passing on wealth they don’t need. It is a conversation we have regularly with our clients.

At a basic level, everyone has an annual gift allowance of £3,000. This means that you can make gifts of up to £3,000 each tax year without any tax implications and the gift can be all to one person or split between many people. If you didn’t use your allowance from the previous tax year, you can bring it forward so you have an allowance of £6,000. Married couples or civil partners can combine allowances and could gift up to £12,000 in a tax year.

Whilst investment values are depressed you can gift a greater number of shares within the £3,000 limit than you could have before markets took a tumble. As markets and investment values recover, the beneficiary of the gift enjoys the upside of rising prices.

What about larger gifts? You can make unlimited outright lifetime gifts of shares and investments and as long as you survive seven years from the date the gift is made, there is no Inheritance Tax to pay. If you die within seven years of the gift being made, the gift is taken into account when calculating the amount of Inheritance Tax payable on death.

Often forgotten when gifting investments is Capital Gains Tax. When you gift an investment you may be liable to pay Capital Gains Tax on any profits made, since you bought it. Capital Gains Tax is payable on profits above your annual exemption, currently £12,300 for the 2020/21 tax year. The rate of Capital Gains Tax is ordinarily 10% for basic rate tax payers and 20% for higher rate taxpayers. Where investments are  standing at a loss, gifting these investments now would not create a Capital Gains Tax liability for you, and can be passed on in a tax efficient way. Any losses that you crystallise in this way, are available to offset gains that you make in the future.

Your financial security is foremost, and you should always have discussions with your Wealth Planner before making significant lifetime gifts. But this could be an opportune time to review your overall wealth plan, and consider passing on wealth to the next generation.

Rebecca Williams // Client Director

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