Selling stocks to avoid capital gains tax after you die is a mistake
My parents are over 70 and lucky enough to be reasonably well off financially. They have always been planners and I have for some time thought of passing on assets to myself and to my brother in the long term. and our families.
The current issue that I have discussed with my father relates to certain stocks that he owns. He has an unrealized gain of around € 50,000 on the shares of one company and an unrealized loss of around € 50,000 on the shares of another company. He plans to sell each other’s shares so that he can use the losses on one share to avoid the gain tax on the other.
The question is whether there is any interest, because he does not “need” this money.. I think he mistakenly believes that the value paid for the assets we ultimately inherit is relevant, when in fact the only thing that matters is the value of those when we inherit them.
In my opinion, he shouldn’t act now if the only reason to do so is for estate planning reasons, but I would appreciate your opinion and advice.
Mr CB, e-mail
As you say, when your father dies, any shares (or other assets) he owns will become part of the estate and will be valued at their value at that time. What he paid for them will not matter at that time … for the estate and whoever inherits it.
If his exercise of selling stocks that are currently at a loss for the price he paid is simply to offset gains elsewhere that he believes could result in a tax bill for someone upon death, he is deceived. Capital gains die with the owner of the asset.
If he has shares bought at € 100,000 and they are now worth € 150,000, he is currently facing a capital gains tax bill of € 16,081 – 33% tax on capital gains. € 48,730 of capital gain that he realized, taking into account the exemption of € 1,270 on capital gains (assuming that he has not already used it this year).
This also assumes that the shares were purchased in 2003 or more recently. If it was before that, indexation comes into play which would reduce its capital gain and its tax bill.
If he were to die today, the shares are still valued at € 150,000 but there is no capital gains tax because that dies with him.
Likewise, any loss on his other shares becomes irrelevant upon his death. They cannot be used by someone else to reduce a tax bill. Losses also die with the owner.
The conversation he should be having with himself is whether he should sell the loss-making stocks now, as he considers that they have no future prospect of making up for lost ground and are, in fact, likely to lose. more of their value. It is an investment call that only he can make.
However, in the event of death, any capital loss resulting from the sale of that asset or other assets would also die with it even if the loss was actually crystallized by the sale of the shares or other assets – and not just notional. as is currently the case.
During his lifetime, he can use the loss to offset other gains in his portfolio in the same tax year. If they are not used in full in the same tax year, capital losses are recognized as a deduction from gains made on the sale of assets in subsequent years, but before death.
As this is something that is regularly requested, I should also clarify that you cannot use capital losses to claim refunds of capital gains tax already paid in previous years by offsetting them retrospectively with those gains in capital. Losses can only be used when they materialize.
If it decides to sell at a loss based on its assessment of the asset’s future prospects, it could reasonably seek to sell another asset to take advantage of those losses, especially if it considers the other asset is now fully valued and likely to fall back from its current values.
But as for the death, it is final for the valuation of the assets: the gains are irrelevant fiscal, the losses as well, and the crystallized losses also die with it.
Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged