Opportunities on assets
The value of many assets has fallen in the economic downturn. While that is generally bad news, it is most probably temporary, and shares and property are likely to appreciate again in the future. Until then, the depressed values present an opportunity to make gifts or to carry out other transactions that you might have considered before but put off because of the tax implications.
This may be a good time, for example, to pass assets to your children. If you make a gift, capital gains tax (CGT) is charged as if you had sold the asset at its market value. Although there is a tax relief for gifts, it does not cover non-business assets. Perhaps you have bought a property for a child, but kept it in your name. You could pass it on and, depending on what you paid for it, you might now have little or no CGT to pay on the gift. The lower value would also reduce any inheritance tax that might arise in the unfortunate event that you die within seven years.
Lower costs and less tax
Some business reorganisations give rise to CGT. Although there are certain tax reliefs, many arrangements do not qualify. There might now be much less tax on such a transaction than previously.
Rewarding employees with shares or share options is also likely to be less costly for the employee than before. For example, under share option schemes approved by HM Revenue & Customs, employees can acquire shares in the future at today’s market value. So granting options now will fix a low price and give the employee a greater incentive as the shares’ value grows again.
Don’t forget pensions
If you have a self-invested pension plan (SIPP), you could take advantage of the low value of the stock market by transferring quoted shares you own into your fund as a pension contribution. Where the shares are standing at a loss, you pay no tax on the transfer, and you get full tax relief on the value contributed to the scheme. Any future increase in the shares’ value will be protected from tax within your pension scheme.
These are just some ways in which you can benefit from today’s lower asset value. We would be happy to help you with these and any other transactions you might have in mind.