Fed up with Christmas shopping? Why not gift one of your assets instead?
December is obviously a period for festive cheer, and not for pondering our demise, however inheritance tax (IHT) planning is an ongoing consideration, and strangely enough the holiday season may present an opportunity to make a tax effective gift.
Many of us prefer to retain our assets until we die, however the consequence may be that our Executors have to make a significant payment to HMRC to cover the resulting IHT liability. At the other end of the scale, we have people who are happy to gift away assets during their lifetime, hope they will live seven years, and therefore reduce their contribution to the Treasury.
Wherever you are on the scale, gifting assets may be something that should form part of your long term tax planning strategy, but IHT is not the only consideration.
Gifts between husbands and wives and civil partners do not result in a capital gains tax (CGT) charge, however gifts to other individuals of non-cash assets are treated as made at market value for CGT purposes, and could result in a CGT liability. Depending on what type of asset is being gifted, there may be an opportunity to defer this liability by reducing the recipients base cost by the gain that arises.
Careful consideration needs to be made about the type of asset being gifted, for example if it is generating income that you need, and whether it is likely to grow in value over the years, and indeed whether there are any reliefs available. There is a balancing act between a possible immediate CGT liability now, against an IHT liability when you pass away, though this is perhaps your Executors issue to deal with and not yours!
For a gift to be effective for IHT purposes you must not continue to benefit from it after it has been gifted, otherwise it may still form part of your estate or may be caught by a separate tax charge.
Of course there are always more complex arrangements that could form part of an overall tax planning strategy, such as the use of trusts.
So rather than walking around the shops or trawling the internet for that perfect gift, why not gift an asset? But remember gifts are for life, not just for Christmas!
For further information please speak with your usual Kreston Reeves adviser or contact us here or on +44 (0)330 124 1399.
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