Gifting shares of stock is a great way to pass along an investment to a loved one. The process to gift stock shares is straightforward as long as you follow the correct procedures. Gifting stock shares has tax implications for the giver and the recipient. If done properly gifting shares can benefit both parties.
When you gift a stock you are transferring your ownership rights of the stock to someone else. You do not need to gift the full number of shares you own in a particular stock; if you own 1,000 shares in a company you can gift 100 shares if you like. Gifting a stock is not reversible. You will not be able to take back the stock unless the person you gave it to agrees.
Before you gift a stock the recipient needs a brokerage account. Minors will need an adult older than 18 to set up an account. Once the account is set up, inform the recipient's brokerage firm that you would like to gift stock. The broker will provide you with the simple paperwork and in approximately a week the shares will be transferred from your account to the recipient's account.
Tax Consequences for the Giver
If the stock has appreciated in value since it was purchased, the person giving the gift is relieved of paying taxes on the capital gains. On the other hand, he may have to pay a gift tax. As of Jan. 1, 2009, if you donate more than £8,450, including stock, to a person in a year you have to file a gift tax return. Tax laws are complex, so speak to your financial adviser to determine if your gift of stock will incur a gift tax.
Tax Consequences for the Recipient
The person receiving the gift will be responsible for the capital gains taxes if she sells the stock for a profit. The tax will be calculated based on the stock's value the day it was given, not the price at which it was originally purchased by the person giving the gift. For example, if the stock was purchased for £6,500 and it appreciated to £7,800 when the gift was made, then the cost basis used to calculate capital gains if the recipient decides to sell is £7,800.