The coronavirus-related losses that can reduce tax bills
Although the country needs all the tax it can get at the moment, that doesn’t mean the capital tax rules will always ignore fairness. The best example of this is inheritance tax on the estate of someone who has died.
Lower inheritance tax bills that reflect losses in value
Inheritance tax is based on the value at assets at death. However, it can take time for probate to be granted and executors to sell the assets. These delays may be even more pronounced due to government lockdown measures and the economic impacts of the coronavirus pandemic.
Thankfully, the law recognises that it would be unfair to pay inheritance tax on the value of the assets at death if the assets subsequently fall in value. As such, for shares and property sold within a year and four years, respectively, it is possible to make a claim for the inheritance tax to be based on the sale price, if lower, than the value at death.
If property values decrease, you can claim ‘fall in value relief’ on gifts
Assets that are gifted within the seven years before death can incur an additional inheritance tax charge. Usually when this happens, these assets – typically shares or property – will be brought into the calculation of the inheritance tax charge on death at the value they held when they were gifted.
However, a fall in value relief may be claimed when the value of the gifted property has decreased since the date of the gift.
Capital losses can offset your capital gains tax bill
This tax year everybody has an annual capital gains tax (CGT) allowance of £12,000. This means you only pay CGT on gains exceeding this amount.
Where you have assets, most notably stocks and shares, they may now be worth less when you sell them than when you bought them. If so, you will have a relievable capital loss.
This may be particularly helpful if you have made or expect to make capital gains in excess of the £12,000 annual exemption this tax year.
These capital losses could reduce your overall capital gains tax bill by up to £2,800 per £10,000 of relievable loss. Furthermore, capital losses which can’t be offset against gains this year can be carried forward into future tax years.
However, if the same shares that have been sold are re-purchased within 30 days, the capital loss is not relievable. Professional advice should be taken regarding any subsequent re-investment of the sale proceeds.
Plan your gifting
Additionally, given the current Covid-19 restrictions where many weddings are being postponed or cancelled, it’s worth bearing in mind (if you are planning to contribute when these events are reorganised), there is no tax on wedding or civil partnership gifts up to £5,000 to your children and £2,500 to your grandchildren.
Julia Rosenbloom is partner at financial and professional services group, Smith & Williamson