“There’s a silver lining in the crunch,” says The Sunday Times’ Kate Hughes, “let the next generation profit from our losses”. Your shares may have taken a pounding over the past two years, while your second home purchase may be ‘underwater’. But you can crystallise those losses to cut your tax bill, while passing your portfolio on to your offspring.
Gifts from parents to children usually incur capital gains tax (CGT). But if there’s no gain, or your profits are below the CGT allowance (£9,600 this year), there’s no tax to pay. You can generally carry forward capital losses on shares or property indefinitely to offset against future gains, though you must tell the taxman within five years of incurring the loss.
Also, while the individual inheritance tax (IHT) threshold is now £325,000, anything over this incurs 40% tax on your death. But gifts are taxed on a seven-year ‘tapering’ basis, after which no IHT is due.
But remember, you must give up your gift. Taking any benefit – such as living rent-free in a property you’ve donated to children – can incur IHT as if you had never made the gift.