Covid-19 sees share prices plummet - but gift-giving surge

The recent slump in share prices has presented something of a rare opportunity. In fact, if you are planning to gift any investments to your family, now is the time to do it.

As the FTSE100 tumbles to around a fifth of its value compared to the start of the year, families are acting now to cash - and reduce their inheritance tax (IHT) liabilities along the way.

In the UK, everybody has a tax-free IHT threshold. Any property or assets, including shares, can be passed on without families paying IHT, as long as the total assets are worth less than £325,000. There is also an amount worth up to £175,000, known as the Residence Nil Rate Band (RNRB), if you are passing the family home to a direct descendant.

Anything that goes above that threshold is charged at 40% tax, making it one of the most controversial taxes in the UK. But the tax is a lucrative one, pulling in around £5.4 billion for the Treasury in the tax year 2018/19.

IHT thresholds have been frozen since 2009, making it difficult for property, for example, to fall within that band value. Those with other assets, such as trust funds or shares, may also find that this £325,000 allowance is quickly eaten up.

Outside of that allowance, you can give away up to £3,000 as a gift in each tax year. Generally, anything above that and the 7-year rule will apply - where the donor must be alive for seven years after the gift has been made. Otherwise, your family could be liable for IHT on the lifetime gifts of anything worth more than the £3,000 threshold. This depends on the value of your estate when you pass away.

However, with the recent turn of events, there’s been something of a spike in those wishing to gift their shares. What would have been worth £3,000 may now only worth around a fifth of its value - so you could now potentially pass on a lot more as shares values will only be calculated on current value and your family may not need to pay a single penny in inheritance tax.

There’s an added benefit too. Usually, if the shares had increased in value, you would need to pay Capital Gains Tax - for the gain on that share value. However, as the values have decreased, there’s a chance to make those gifts much more tax efficiently.

Of course, it is always recommended that you seek financial and legal advice as careful planning is recommended and specifically so it is relevant to your personal circumstances

If you would like to discuss and consider these issues and leaving a gift to your family, contact Downs Solicitors to see how we can help.