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20 December 2021

The Gift of Giving

The Christmas season brings many things: flavoursome food, time-tested tipples, and most famously, giving gifts. While at Redmayne Bentley our office microwave may rarely yield the first, and we lack the license to provide the second, we are happy to help spread the Christmas spirit.

The gift of investing
When thinking of ways to give gifts, few think of gifting shares. This can help to fund your children’s education, give a family member a tangible stake in the family business, or support your spouse financially. As it is a gift, the transaction is automatically exempt from stamp duty. If you use the same investment platform as the recipient, this can be simplified and completed electronically with ease.

Things can be a little different when it comes to Capital Gains Tax (CGT). If gifting the assets to your spouse, civil partner or a charity, the transaction is exempt. Your spouse may have to pay tax on any gains when they sell the asset, which is calculated from the date you first purchased it, not gifted it. Gifts to charity are only charged CGT if you sell the asset to the charity for more than you paid for it. When transferring assets to someone you are ‘connected with’ or a friend, you may need to pay CGT. This would be calculated as if you had sold the asset at market value at the point of transfer, even if you give it for free.

A gift for life
Sometimes a gift is best when not enjoyed immediately. Setting up a trust will establish a legal entity separate from the person giving the money, ‘the settlor’, the person(s) it is intended for, ‘the beneficiary’, and the trustees. A trust deed will set out rules on how the assets will be used, and there are several types of trust to suit most needs.

A discretionary trust allows the assets and income to be distributed at the discretion of the trustee, who decides when the right conditions have been met. This is best suited for less financially responsible or capable beneficiaries, or when the money is intended for a very specific purpose. Another example would be accumulation trusts, which retain all their capital and income from investments for a period, making them ideal when linking the money to a date such as a milestone birthday. As tax rules vary for different trusts, consulting an estate planner will help navigate you to one most suited to you.

A gift for those in need
In the true spirit of Christmas, setting up a charity trust will help give to the causes you feel need it most. These are held in a tax-protected portfolio and can be set up as an annuity or unitrusts. Annuities pay a specified absolute amount every year to charitable organisations, whereas unitrusts pay out a specified percentage of the assets every year.

Gift your children their financial freedom
Tired of seeing the pile of dusty, unused toys grow after every Christmas? Though not as flashy, setting up a Junior ISA (JISA) could be a long-term, sustained present. A JISA can come in cash form, which acts as a savings account with fixed interest, or in investment form, which allows you to select investments at your own discretion and can grow at a greater rate, though with greater risks. This type of account is free of taxes and, since assets cannot be withdrawn until the child reaches 18, allows money you put in to have a long run of compound interest. While you might experience fewer squeals of excitement on Christmas day, you might save yourself a trip to the tip, and you might let your children buy something more valuable that they’ll appreciate for much longer when they’re old enough to make the choice.

Whatever you choose to give this year, it is important to know your options, and that sometimes you can give your loved ones more than what sits under the tree.
 
The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
The Gift of Giving
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