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Where Taxpayers and Advisers Meet

Will Transfer of assets abroad apply

Ramkumi
Posts: 2
Joined: Thu Dec 05, 2019 1:49 pm

Will Transfer of assets abroad apply

Postby Ramkumi » Sun Dec 08, 2019 6:54 pm

Hi,
I'am caught between a rock and a hard place.
I'm UK domiciled,resident and a higher rate tax payer.
My Parents are non UK domiciled foreign citizens and have never been UK resident.
My father passed away last month. It was his wish that all his estate be passed to my mother and made some arrangements for this to happen. However due to some misunderstanding of the law his arrangements did not have the desired result.
Consequently he died intestate leaving my Mother and I, each entitled to half of his estate.

His estate comprises of about 220,000 pounds in Bank deposits and a house valued at about 100,000 pounds (all NON-UK situated).

I wish to do the right thing and want to relinquish my share of the inheritance in favour of my mother and give effect to my father's
wishes. Also there is some amount of family pressure to do so, as this is tradationally expected in our part of the world.
Once I give up my inheritance my mother will own all my Father's assets absolutely. She intends to keep the money in the Bank and live of the interest which will be substantial. She will pay tax on the interest income in her country at approx 31%.

So far so good. However having done some research I have come across this "Settlements legislation" and "Transfer of assets abroad" law. After reading these it appears to me that although I might be happy to give up my inheritance the HMRC might not feel so charitable and would want to Tax me on my mother's income.

Tax avoidance is not motive here, all I want to do is the right thing and carry out my Father's wishes, especially as I
stay away from my mother and do not look after her in any way. I should point out that it is possible that I will inherit from my mother if she leaves me her estate via her will or if she dies intestate.

Can someone please advise if the Transfer of Assets abroad law or Settlements legislation will apply to this transaction?

Thanks
Ramkumi

AGoodman
Posts: 1072
Joined: Fri May 16, 2014 3:47 pm

Re: Will Transfer of assets abroad apply

Postby AGoodman » Mon Dec 09, 2019 11:48 am

No, neither will apply because:

- no settlement (settlements)
- you can't benefit from the income (ToAA) (at least not within the meaning of the legislation)

You might want to find a way to make elections under s.62 TCGA / s.142 IHTA to avoid having to declare your gift of half the house on a tax return and to avoid IHT implications on the entire gift if something should happen to you. The CGT is not a tax risk - it will just avoid you needing to file a return if you don't otherwise file. The IHT only really an issue if you have other assets that (with the gift) would add up to near £325k or you might have in the next 7 years.

maths
Posts: 7947
Joined: Wed Aug 06, 2008 3:25 pm

Re: Will Transfer of assets abroad apply

Postby maths » Mon Dec 09, 2019 6:10 pm

The transfer of assets legislation, as AG points out, to apply requires that following any transfers you still have power to enjoy them which isn't the case here.

From the UK tax perspective executing a so-called Deed of Variation (IHTA 1984 s142 and TCGA 1992 s62) by you in favour of mother would be the most efficient way of effecting your inheritance back to mother. No UK tax consequences.

No settlement is created by you.

You should probably check the tax position where mother resides (the above is valid for UK tax purposes but probably not for overseas tax purposes).

Ramkumi
Posts: 2
Joined: Thu Dec 05, 2019 1:49 pm

Re: Will Transfer of assets abroad apply

Postby Ramkumi » Wed Dec 11, 2019 2:28 am

Many Thanks AGoodman & Maths for your valuable opinion.

I'm no lawyer and have been reading through what is available online and trying to make sense of my situation.

Reading online the following excerpts trouble me, so if you could please provide your opinion as to why the following is not applicable it will put my mind to rest.

As I understand a Settlement is supposed to include any transfer of assets except outright gift to spouse(not clear about an outright gift to another person).
Also the law states that if any property or related property "will or become so payable or applicable to the benefit of settlor or settlors spouse in any circumstances" then the law applies. In my case it the circumstance could be I inherit from my mother.

WRT to transfer of assets legislation I'm bothered by following conditions
"power to enjoy - condition c" which states "that the individual recieves or is entitled to recieve at any time any benefit provided or to be provided out of the income or related money" for example I might gain through inheritance.
"power to enjoy - condition d" which states "that the individual may become entitled to the beneficial enjoyment of the income if one or more powers are exercised or successively exercised by whomsoever". For example my mother has the power to write a WILL in my favour.

Also in irc v Botnar the Judge held that Mr. Botnar had the power to enjoy the income of the Trust as he could influence his friend who was the protector of the trust to transfer the property of the trust to another trust through which he could benefit. In my case it can be argued that I can influence my mother.

Maybe I don't fully understand the law and 'am reading only bits and pieces and panicking.

The HRMC website has absolutley no guidance on what to do (and what not to do) when your relative dies abroad and you have these types of family situations.


Thanks
Ramkumi

AGoodman
Posts: 1072
Joined: Fri May 16, 2014 3:47 pm

Re: Will Transfer of assets abroad apply

Postby AGoodman » Wed Dec 11, 2019 3:36 pm

I'm loathe to resort to argument from authority but the summary is that I've been doing this for 20 years and I'm confident that none of this applies. In slightly longer form:

As I understand a Settlement is supposed to include any transfer of assets except outright gift to spouse(not clear about an outright gift to another person).
> It can but see below.
Also the law states that if any property or related property "will or become so payable or applicable to the benefit of settlor or settlors spouse in any circumstances" then the law applies. In my case it the circumstance could be I inherit from my mother.
> The "settlor" does not have an interest in the "settlement" just because he could benefit by an independent act of a third party. West v Trennery [2003] STC 580, 601 and to some extent, common sense.

WRT to transfer of assets legislation I'm bothered by following conditions
"power to enjoy - condition c" which states "that the individual recieves or is entitled to recieve at any time any benefit provided or to be provided out of the income or related money" for example I might gain through inheritance.
> only if you had created some arrangement/mechanism whereby you could or might benefit. The possibility a third party might leave it to you does not count.
"power to enjoy - condition d" which states "that the individual may become entitled to the beneficial enjoyment of the income if one or more powers are exercised or successively exercised by whomsoever". For example my mother has the power to write a WILL in my favour.
> "power" has a specific technical meaning here.

Also in irc v Botnar the Judge held that Mr. Botnar had the power to enjoy the income of the Trust as he could influence his friend who was the protector of the trust to transfer the property of the trust to another trust through which he could benefit. In my case it can be argued that I can influence my mother.
> that was dealing with a trust structure and it was clear that they did in fact intent to get the funds to Mr Botnar. It was superceded by West v Trennery.

Maybe I don't fully understand the law and 'am reading only bits and pieces and panicking.
> If it did apply then anybody making a gift of money to another person would have to be taxed on the interest or other income that came out of it. That just isn't the case (there are special provisions relating to parents and minor children which would not be necessary if this were the case).

maths
Posts: 7947
Joined: Wed Aug 06, 2008 3:25 pm

Re: Will Transfer of assets abroad apply

Postby maths » Thu Dec 12, 2019 4:06 pm

Well Ramkumi, AG's last response is the best and clearest answer you're likely to get.

Of all the areas of taxation in which to "dabble" the transfer of assets provisions and the settlement provisions are probably not a good choice.

AG refers to West v Trennery; this case to me classically illustrates the complexity of tax legislation and how even the alleged "best" legal brains in the country can't even agree.

From memory, in that case the Special Commissioners agreed with the taxpayer but the High court sided with HMRC but then the C/A overruled agreeing with taxpayer (who at that point must have been over the moon) only to have the final court (the. House of Lords) support HMRC !!!

What a bummer !!


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