We look at the process of handing over investments to your spouse, children or even charity
Thursday 12 Dec 2019 Author: Laura Suter

This Christmas you might decide to shun the usual smellies, M&S jumper or cuddly toys and instead give investments to family.

While they are trickier to wrap to go under the tree, you could be giving a present that lasts for years and is far more lucrative than many other gifts.

One thing you need to bear in mind if you’re gifting shares is that you’ll be handing over a very concentrated investment – rather than it being spread around different assets – meaning the risk is higher as  your returns are based on just one company.

TAXING PROBLEMS

When you gift shares to a spouse you wouldn’t need to pay capital gains tax but if you’re giving them to children you could be subject to the tax. You’ll pay capital gains tax on the difference between the value of the shares when you bought them and the value when you pass them on.

However, you wouldn’t need to pay tax if the gain is within the £12,000 annual limit, for the current tax year. Anything above this will be charged at 10% tax if you’re a basic-rate taxpayer or 20% tax if you’re a higher or additional rate taxpayer.

If the gains are sizeable it may be worth gifting the shares over two tax years, to make the best use of allowances. So you could use £12,000 worth of gains now (assuming you haven’t used any of your capital gains tax allowance so far this year) and the remainder, up to £12,000 of gains, in April next year. Although you should factor in any other investments you may want to sell too.

You also need to consider inheritance tax if you’re gifting to your children. Everyone has a limit of £3,000 they can give away each tax year without it being considered in your estate were you to die.

OTHER ALLOWANCES

There are various other allowances too, such as if a child or grandchild is getting married. A particularly lucrative allowance is the ‘gifts out of income’ rule, which means if you’re gifting money from your income and can prove it’s not detrimental to your lifestyle, you can gift an unlimited amount.

However, if that doesn’t apply and you exceed your annual gifting allowance then IHT may be due on the gift if you die within seven years, assuming your estate is worth more than the nil rate band for IHT.

The tax works on a sliding scale, so if you die less than three years after gifting then 40% IHT will be due but if you die between six and seven years after the gift then only 8% tax would be due.

You also need to be aware of how much income is generated from the investments. While children can earn up to £100 in income a year free of income tax, anything above this is taxed at the parent’s marginal rate.

One way around this is to use a Junior ISA account, which protects the money from tax. However, contributions to Junior ISAs must be made in cash, so you would need to sell the shares and then re-purchase them within the ISA.


Gifting shares to charity

If you have a small number of shares that aren’t worth a large sum, you might find that it costs more to sell them than they are worth. Instead, you can put them to good use and donate them to ShareGift, which groups shares together and sells them for charity.

Giving to your partner

It can be really tax efficient to give investments to your partner. Any gift of investments to a spouse won’t be liable for CGT, which means that you can make use of your partner’s annual CGT allowance too.

Alternatively you can use something called ‘Bed and Spouse’, which effectively means selling investments to realise gains up to the value of your annual CGT allowance and then buying them again in your spouse’s name.

Other financial gifts

Better than vouchers: While giving gift vouchers seems like a good idea for those tricky-to-buy-for people, they often go unused or expire before they can be used, meaning you’ve wasted your money.

Instead, you could give someone a pre-paid card, it’s safer than handing over cash and saves the hassle of going to the bank to deposit a cheque. You load money on these cards, like a gift card, but then they work like a normal debit card and can be used to buy things in most shops.

Millionaire potential: The minimum amount you can save into Premium Bonds was cut to £25 this year, down from £100, opening it up as a present option for more people. What’s more, while previously you had to be a parent or grandparent to gift Premium Bonds to children, other adults can now gift them too.

While the effective interest rate on Premium Bonds is only 1.4% – based on the average prize payout – and the recipient could win nothing, the lure is that you could win lots more. It means you could be the auntie or uncle that made someone a millionaire, even if this is a very unlikely scenario it would make for a pretty unbeatable present.

Junior ISA gifts: If you ditch the plastic and instead put money into a Junior ISA it can add up by the time they turn 18. If you put £100 into a Junior ISA each Christmas from when the child is born you’d hand them £3,000 on their 18th birthday, or £50 each Christmas would give them just over £1,500, assuming 5% growth a year after fees.

While parents will need to open the Junior ISA for their children, after that anyone can pay into the account – grandparents, friends or other family.

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