The current economic climate has caused widespread falls in the value of property and share portfolios. While this unfortunate situation is of course generally unwelcome, in some cases it does provide an opportunity for tax planning arrangements, especially given the reduction in the rate of Capital Gains Tax to 18%.

For Inheritance Tax purposes, the general rule is that the seven year rule applies to gifts. If the donor dies within seven years of making a gift then it is the value of the asset as at the date of the gift which is brought back into account in the IHT assessment of the donor’s estate. Making a gift while the asset has a lower value therefore minimises the ultimate IHT risk and allows any future growth in the value of the asset to fall outside the donor’s estate.

A gift is also a disposal for Capital Gains Tax purposes in the same way as a sale. A fall in value of an asset being considered for a gift will mean that the size of the chargeable gain will be lower when that asset is given away, and the reduced rate of CGT will also contribute to the likely CGT cost being much lower than might have been the case only months ago. If the likely CGT bill is still unacceptably high then making a gift to a Trust could be a solution as CGT Holdover Relief may be available.

CGT has often in the past been a barrier to breaking long standing Trusts and so the new regime may provide an opportunity for Trusts to be broken.

If you need advice on the above or any related topics please contact Guy Barker, Paul Stott or Peter Hopkins.