TAXTITBITS - 27.01.2005

Silver lining to investment cloud

Inheritance Tax (IHT). Say the share price of your plc investment has taken a tumble recently. Not, of course, that the company is alone in that: but it does give us the chance to bring this IHT reminder. One of the features of making a gift during your lifetime to avoid IHT is that it fixes the value for IHT purposes as at the date of the transfer. Accordingly, if a shareholder gives away a holding of shares and the price subsequently recovers to its former level, that growth will escape IHT (as will the entire value if the transferor survives for the normal seven-year period).

Capital Gains Tax (CGT). If, despite the fall in the value of your investment, you are still up on what you paid for it, there could be a CGT bill on the transfer. However, in any one tax-year you have an CGT-free amount (for 2004/5 this is £8,200) so the gain on a transfer could be covered if you haven’t made any other gains.

Making a gift when the share price is low means future growth is excluded from your estate for IHT. However, if you are still up on what you paid for it there might be CGT to pay on this transfer.

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