IHT. Non tax domiciled to tax domiciled?

[Yenpekkow]

My wife and I are not UK citizens, not resident in the UK, and not tax domiciled in the UK. We reside in Indonesia.

In 2006 whilst our daughters were studying in the UK, we bought a flat for them to stay in whilst studying there and for us to stay in whenever we visited the UK.

In 2013, whilst we were in the UK, we made a rush decision to sell our flat and buy a house. The house was valued at roughly £600,000. Due to various reasons, mainly delays in selling the flat, transferring of funds from overseas to the UK, limited time in the UK, etc., we were only able to accumulate £400,000 in cash. In order to obtain financing for the balance of £200,000, namely a mortgage, it was decided to purchase the house in our daughters combined names, as they are of EU nationality and considered resident in the UK.

Since then, the mortgage monthly repayments have been debited to one of our daughter’s bank accounts in the UK by the mortgage company and we reimburse her for the same amount every month.

Since moving into the house in 2014, our daughters who are both aged 30+, single, and well employed, have been paying for all expenses incurred in running the house. We decided at the time that we would consider this house to now belong to our daughters equally. A deposit let’s say on what they would eventually receive when we pass away.

Whenever my wife and I visit the UK, (twice a year for about 6 weeks each visit), we stay at this house.

There are no inheritance, estate, and gift taxes in Indonesia, but we are very keen to find out what would be our daughter’s tax exposure now in the UK with regards to this house, and if any, what steps would be required of us to ensure that any taxes would be kept to a minimum.

Thank you in advance for any information, assistance or guidance you may provide.

[AGoodman]

I think there is a prior point there. If your daughters were holding the property as your nominee then it cannot just become theirs.

Strictly speaking, you cannot assign your beneficial interest without at least a document in writing and signed by you.

Separately, a transfer will have three implications:

1. A potentially exempt transfer for inheritance tax - this will only be important if you were to die within 7 years of the gift but (absent any other UK gifts) should in any case be below the threshold for tax. The 7 year period could restart if you use the property for more than a week or so a year as this would be considered a reservation of benefit (giving an asset away but still using it).
2. A disposal for CGT. If the property has increased in value since April 2015, you could have a capital gains tax liability on the current market value vs the April 15 value. You are also required to file an online NRCGT return within 30 days of the gift.
3. There could be a stamp duty liability on the current value of the mortgage although it is debatable that your daughters are already liable for this and so this is less clear.

Ongoing: your daughters will benefit from PPR (so no CGT) on a future sale provided it remains their main home and at risk of IHT on death, although their UK assets could be under the threshold.

[maths]

It isn't I think 100% clear as to the basis on which the UK house was purchased.

What did your UK solicitor put on the Form TR1 which would need to be lodged with Land Registry?

Who was intended to own the property you/wife or children?

Who did you tell the solicitor was to own the house?

[Yenpekkow]

I think there is a prior point there. If your daughters were holding the property as your nominee then it cannot just become theirs.

Strictly speaking, you cannot assign your beneficial interest without at least a document in writing and signed by you.

Separately, a transfer will have three implications:

1. A potentially exempt transfer for inheritance tax - this will only be important if you were to die within 7 years of the gift but (absent any other UK gifts) should in any case be below the threshold for tax. The 7 year period could restart if you use the property for more than a week or so a year as this would be considered a reservation of benefit (giving an asset away but still using it).
2. A disposal for CGT. If the property has increased in value since April 2015, you could have a capital gains tax liability on the current market value vs the April 15 value. You are also required to file an online NRCGT return within 30 days of the gift.
3. There could be a stamp duty liability on the current value of the mortgage although it is debatable that your daughters are already liable for this and so this is less clear.

Ongoing: your daughters will benefit from PPR (so no CGT) on a future sale provided it remains their main home and at risk of IHT on death, although their UK assets could be under the threshold.

Hello.

Thank you very much for your comments and input.

There are quite a few terms I do not understand, such as CGT, NRCGT and PPR, but I think I follow your overall thinking.

This I find difficult to accept or understand:
The 7 year period could restart if you use the property for more than a week or so a year as this would be considered a reservation of benefit (giving an asset away but still using it).
If the house belongs to our daughters, and they invite us to visit and stay with them whenever we can visit the UK, and if we do for more than just one week in a year, they will potentially be penalized?

I think it is time for us to engage a reputable tax consultant to sort out our situation, as there are quite a few other IHT situations between us and our daughters that need professional attention, I think. As mentioned, there are no inheritance, estate, and gift taxes in Indonesia, and we had not given any thought whatsoever about this before, but the last thing we want is for us or our daughters to run afoul with the UK authorities.

[Yenpekkow]

It isn't I think 100% clear as to the basis on which the UK house was purchased.

What did your UK solicitor put on the Form TR1 which would need to be lodged with Land Registry?

Who was intended to own the property you/wife or children?

Who did you tell the solicitor was to own the house?

Hello.

Thank you for your response.

The house was originally intended to be our family home in the UK, like we have a family home in Indonesia.

The house is registered with Land Registry as belonging to our two daughters.

Originally it was intended for the house to be owned by my wife and I, but this could not be done at the time for the reasons previously indicated. We then decided to purchase it for our daughters and in their name. We still own the flat in the UK that we could not sell in time in my wife’s and my name.

We told the solicitors that our daughters were to own the house.

Hopefully this explains more clearly the situation.

Thank you.