Share the wealth
First published 09 June 2014 • Updated 13 March 2018
If your bonuses are paid with share allocations in a different currency, you’ll need to know how to reduce your costs and liabilities in the UK.
Having bonuses either fully or partially paid in company shares is commonplace in the UK’s financial services sector, but if your employer has its head office abroad it can potentially cause you some difficulties when it comes to your wealth management planning.
Company share issues are usually accompanied by a ‘tie in’ for a period of years which prevent executives from divesting those shares too quickly and if the shares are held in a different currency to sterling, there is not only market risk to consider but currency risk too. Of course, if something untoward was to happen to the firm – yes, few of us would have thought a big firm could fold before the credit crunch, but things are different now – then you are potentially going to lose a significant amount of money.
So making sure you handle your shares effectively when it comes to your wealth management planning is key as you could find yourself facing unnecessary tax charges and getting less in dividends than you might expect because of the rise and fall in exchange rates.
Who can you trust?
There are many wealth management companies in London, but you need to deal with a firm that has a very good understanding of the best way to mitigate any tax liabilities and to reduce any impact that holding shares in another currency will have on your overall holdings. This is a specialist area and one where making the wrong decision could prove costly.
Use your capital gains tax allowances
If you are holding a large number of company shares, then there are a number of things you can do through effective wealth management planning to improve your financial position. The first is to make sure you are using all of your capital gains tax allowance each year that you are able to sell your shares.
For the 2013/14 tax year, the capital gains tax (CGT) allowance is £10,900 and you can sell shares with this much of a gain without having to pay a penny in tax. You may have shares with a gain significantly higher than the value that you want to crystallise in a particular year and if that is the case you could use the allowance of your spouse or civil partner.
Each of us has the CGT allowance each year, so if your husband or wife has this allowance spare in this particular year, then by transferring shares to him or her you can use this additional allowance and crystallise a gain of £21,800 tax free. There is no tax to pay on the passing of assets between a husband and wife or civil partners, so once you are no longer tied into the owning of the shares from the bonus allocation, you can transfer the ownership and benefit from both allowances.
Improve your exchange rate
The one thing to consider if your shares are held in a different currency is that you may be able to remove some of that currency risk by ‘fixing’ the rate you will get by using a currency broker rather than your bank to deal with the exchange.
Your adviser should be able to introduce you to a currency broker who can take care of this for you and most brokers will offer you free guidance on when to fix your exchange rate to get the best deal which can save you thousands of pounds on large transactions.
To ensure that you are getting the most out of your shares, perform these simple actions:
- Make use of both your and your spouse’s capital gains tax allowance.
- Consider the exchange rate if your shares are held in a different currency.
- Consult a wealth management adviser that you can trust and has specialist knowledge in this complex area.
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About the author
Alan Smith is the CEO of Capital Asset Management. His specialisms include: wealth management, strategic financial planning and creative tax planning.
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