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Where Taxpayers and Advisers Meet

Gift to foreigner

Mdchabax
Posts:3
Joined:Thu May 04, 2017 5:58 pm
Gift to foreigner

Postby Mdchabax » Thu May 04, 2017 6:17 pm

Hi
I am resident and uk deemed domiciled..
My parents are foreign nationals resident and domiciled abroad(never been to uk).
My father died last month leaving me and my mother a house abroad.
However I do not wish to take anything from my father and wish to gift my share of the property to my mother.

My question is that will I have pay any Capital Gains tax in the UK if I gift this foreign property to my mother who is resident and domiciled abroad?

Will the Capital gains tax be calculated on the full market value OR only on increase in value since my fathers death?

Will I have to pay any inheritance tax immediately? The value of my share is approx £60K?

Is there a tax efficient way of doing this?

Thanks
Mdchabax

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Gift to foreigner

Postby AGoodman » Fri May 05, 2017 10:10 am

You will not be liable for IHT on your father's death (as beneficiaries do not pay UK IHT) and any UK CGT would only be payable on the increase in value since your father's death.

There is a risk of UK IHT if you died within 7 years of making the gift as it would be added to the value of your estate on death.

If this is a concern, and less than 2 years have passed since your father's death, you could make a deed of variation, assigning your share to your mother. This should expressly refer to s.142(1) of the Inheritance Tax Act 1984. It may be possible to do this in the foreign document that you use to transfer the property to your mother.

It is worth taking proper advice on this to ensure that the document amounts to a variation of the estate or disclaimer of your interest (as required), rather than just a gift following the distribution of your share of the estate to you, and that the practical parts of the document (the gift rather than the tax) are valid under the law of the relevant country.

The effect of a valid variation under s.142 is that (for UK IHT) the property would be treated as always having been left to your mother.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Gift to foreigner

Postby maths » Fri May 05, 2017 4:04 pm

I agree with AG's comments above.

The concept of the Deed of Variation is applicable only for IHT and/or CGT here in the UK; it is irrelevant to foreign taxes.

Thus, under foreign law, if you execute a DoV here in the UK you will be making an actual gift of your interest in the house for foreign legal and foreign tax purposes.

In short, under a UK DoV there would be neither UK IHT or CGT consequences.

Mdchabax
Posts:3
Joined:Thu May 04, 2017 5:58 pm

Re: Gift to foreigner

Postby Mdchabax » Mon May 08, 2017 2:36 am

Thank you very much AG and Math for the advice on deed of variation . I have sought some further advice and have been told that if I do this transfer then I still will be liable to tax on any income that my mother might derives from this property (by rent etc) in accordance of the Transfer Of Assets Abroad law as there is a likelihood that property and might revert back to me after my mother.

Is this correct? Will HMRC treat this as some kind of trust?

Thanks
Mdchabax

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Gift to foreigner

Postby AGoodman » Mon May 08, 2017 10:44 am

It doesn't sound correct at first sight.

You would be liable for income tax on any income between your father's death and the gift to your mother as there is no retrospective fiction for income tax (as there is for CGT and IHT). This would presumably be minimal or non-existent.

If the gift to your mother is an outright gift - ie she will simply own the whole property in her own name - and your only hope of benefitting is that she will leave it to you on her death (or possibly gift it to you at some stage), that should not be caught by the ToAA provisions. The rules are drafted widely but are not generally considered to be an issue in relation to an outright gift. This would remain the case even if your mother lived in a forced heirship jurisdiction (such as most of Europe) where you have rights to a share of her estate.

ToAA may be in play if there is some form of trust or usufruct involved.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Gift to foreigner

Postby maths » Mon May 08, 2017 11:31 am

The transfer of asset provisions are are not in point here. These provisions are extremely technical but are not intended to catch the type of transaction being discussed.

The gift to your mother is I assume intended to be an outright gift. Once gifted you have no entitlement to any income arising from the property (or any part of the property itself); the fact that you may or may not inherit it on your mother's death is of no relevance. Technically, under the section you have "no power to enjoy" any income from the property, a requirement of the anti-avoidance provisions.

In addition the transfer would fall within the defences available under the provisions.

Mdchabax
Posts:3
Joined:Thu May 04, 2017 5:58 pm

Re: Gift to foreigner

Postby Mdchabax » Sat May 13, 2017 9:17 am

Thanks for your valuable advise.
Having looked at the IOV2 Form on HMRC website it says that you only have send the Deed of Variation if there is a change in amount of inheritance tax payable.
Since this gift would be neutral from inheritance tax perspective does this mean tgat I do not have to send this deed to HMRC
Thanks
Mdchabax


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