Gift from abroad, is it taxable?

[sts89]

My wifes parents in China sent us £150,000 as a bridging loan recently, and now that the house sale is complete they have said that we can keep the money. It is currently in my current account and I want to transfer it to her UK savings account but fear that we may have to pay tax if we keep the money, if this is the case then we will send it back to them. We are both UK residents, can you help to clarify what taxation we will have to pay if we keep the money?

[jbaileycta@btopenwor]

If the £150,000 is a gift, you will have no UK tax to pay on it.

If the giver of a gift dies within seven years of making the gift, UK Inheritance Tax may be payable. If your wife's parents are Chinese and live in China, then this would not apply. If however they are treated as domiciled in the UK (broadly, if they are UK citizens and have not moved permanently to China), then the seven year period will apply.

James Bailey
Chartered Tax Adviser

[sts89]

Thanks James, I have been reading around the subject and agree that this is the case, nice to hear it from a professional aswell.

[maths]

One small point on "James Bailey"'s comments.

It appears that the gift from your parents has been made in the UK and thus constitutes UK situs property.

Thus, in principle, whether your parents are Chinese or UK domiciled if the giver dies within 7 years iht will be payable.

However, the first £275,000 of gifts by a parent may be made iht free and thus if your parents have not made any prior gifts to you then the £150,000 is within the £275,000 limit.

[sts89]

The gift originally came from China to my wife as a bridging loan to buy our home, when we sold the old home and got the money back they decided it was a gift and it is currently in my bank.

I want to give it to my wife to put into her high interest savings account but we are worried about being questioned about where it came from and the government wanting to tax it.

Does any IHT of CGT apply to it?

[maths]

I assume the house you have sold is the house in which you have lived; if so then not tax to pay on any gain on the house sale.

Re the gift of money before answering please let me know if you and your wife are UK domiciled or not?

[sts89]

Yes we are both UK domiciled, I am a UK citizen and we got married a year ago and we live and work in the UK.

We moved house and the buyer looked like pulling out so we took the bridging loan from her father in China to keep our deal alive. Mow the move is complete and we have a normal mortgage situation the money has been sent back to my account and I want to give it to her to put into a high interest account. Her Father has said that he does not need the money back and asked us to keep it.

[maths]

Just to reiterate, your and your wife's domicile status is important to the issue you raise.

You state that you are both UK domiciled. On this basis any transfers/gifts between the two of you will not give rise to any UK tax liabilities.

The issue relates to the gift that is now being made by your wife's Chinese father to one or both of you.

As the money is in a UK bank account any gift by the overseas father falls within iht. If he dies within 7 years of making it you/your wife will in principle have an iht liability.

However, if the gift is less than £275,000 (which it appears to be) and no earlier gifts have been made then the liability is at a 0% rate ie nil but again only if death occurs within 7 years.

It may be that in due course due to the interest earned on the account that you/your wife may be asked about its source. You only need state that it was a gift; although you will probably be asked to identify who made it to you/your wife.

[sts89]

Thanks for the advice maths, I will now send the money to her account with confidence.