Receiving property from an overseas trust

[federef]

Hello and thanks for reading!

I am a dual UK/NZ citzen looking to wind up a trust in NZ which owns 4 rental properties and transfer the assets to myself.
I live and work in the UK, am a higher rate tax payer (40%) and also receive rental income from another UK property.

The idea of winding up the trust in NZ is to drop the tax on its rental income from the 33% trusts pay, and reduce it due to not having an employment income there. However I'm wondering if this might not be a good move at all.

Does anyone know if I would I have a tax liability here in the UK from gaining the properties as assets (there is no capital gains tax liable on these in NZ).
And also would there be additional tax liable from the rental income here if I've already paid tax on it there?

Any help would be much appreciated!

[AGoodman]

Yes, there could be substantial UK tax here.

If the properties are standing at a gain (since the trust acquired them) then the trustee(s) will make a capital gain when the trust is wound up.

The trustees are liable to NZ tax or UK CGT but that gain will be attributed to you as a UK resident beneficiary receiving the properties. By default, you will be taxed at 28%.

By default, you would also be liable for UK income tax on the rental income at your marginal rate (40%) but could set the NZ tax against that as a credit. Your overall tax (NZ + UK) would therefore be 40%.

If you've been in the UK for less than 15 years then you may be able to claim the remittance basis but I suspect that is unlikely to be very attractive and probably outside the remit of this forum. The benefit would be that you wouldn't pay the UK CGT on winding up the trust until you later brought the proceeds to the UK. The disadvantage is that there is an annual charge to claim the remittance basis from your 8th year of UK residence and you lose your personal allowances for IT and CGT for the year you claim it. If the sums are considerable and you've been here less than 15 years, then it may be worth getting some proper advice. The fact the income tax would be potentially worse than the current trust rate may kill off the idea anyway.

[federef]

Many thanks for your comprehensive answer AGoodman.

It does sound like there's no escaping this, even though the income is in another country and has not been involved with our lives here.

[maths]

I agree with AG's comments.

Assuming remittance basis not claimed then any NZ rental income will be subject to income tax in the UK on the arising basis at your marginal rate (40%) albeit with an offsetting credit for any NZ income tax on it; this may not end up being literally a £ for £ offset. Your NZ income will be converted into UK £ on each occasion it arises (or possibly an average yearly rate of exchange may be adopted). Any appreciation in the NZ currency against the £ will inflate the UK tax charge.

If you were married you could share the income with the wife.

[AGoodman]

Hopefully you all spotted my deliberate mistake. Should be:

The trustees are NOT liable to NZ tax or UK CGT...

[maths]

Of course.

But it seemed a shame to point it out given all the trouble you went to to provide a detailed response !

[maths]

That's the sort of guy I am...