With falls in the stock market often spooking investors, Sean McCann, chartered financial planner at NFU Mutual, has suggested ways to help clients take advantage of the turbulence.
According to McCann, clients sitting on capital losses can make use of these to reduce any future gains, without coming out of the market.
Selling shares and buying them back within 30 days is not treated as a disposal and therefore wouldn’t create a loss. Similarly, gifting shares to a spouse or civil partner would not be treated as a disposal for capital gains tax purposes, but there are ways to trigger a loss and stay in the market, says McCann.
Clients can sell shares and buy them back in an ISA or pension, sell shares and the client’s spouse/ civil partner buys them back or sell shares and buy shares in a different company or fund within an OEIC.
McCann says: “Falls in the market can present opportunities for tax planning to reduce tax on future gains. If you have shares or investments that have reduced significantly in value since you bought them, you may want to take advice on how best to utilize those losses to reduce future capital gains tax bills.”
Clients can also reclaim overpaid inheritance tax, if the executor sells any qualifying investments at a lower value within 12 months of the death they can reclaim inheritance tax paid on any loss.
If some of the investments in the estate have increased in value, one option open to the executors is to assign these direct to the beneficiaries and only sell the investments that have fallen in value to maximise the amount of IHT that can be reclaimed.
McCann says: “Our research shows nearly 10,000 reclaims for overpaid inheritance tax on qualifying investments that have been made in the past six years. When stock markets fall, it’s crucial that families who have recently paid an inheritance tax bill check whether they are due a refund. HMRC will not give the refund automatically; it needs to be proactively claimed.”
Falls in the stock market may also provide an opportunity for clients wishing to make gifts, either directly or into trust. The value of the gift is frozen at the date it is made, meaning any future growth is outside the estate and if death occurs within seven years any growth won’t be taxable.
McCann adds: “Anyone considering making gifts in order to reduce their potential IHT bill may want to take advantage of recent falls in the market and freeze the value of the gift at today’s prices, in the knowledge that any future growth won’t be included in their estate.”
