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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My father is domiciled in UK. He is considering paying a proportion

Customer Question

My father is domiciled in UK. He is considering paying a proportion of the cost of purchase of a house in France, the rest of which will be purchased by his son (me). I am also domiciled in UK. This French house would be used primarily for rental purposes, but occasionally for family holidays.

1) Will the gift by liable to inheritance tax in UK if my father lives for more than 7 yrs. and his estate is valued over the £325K threshold?
2) Will inheritance tax by liable in France on me as the beneficiary if the gift is over the French threshold of 100K Euros?
3) Will both of the above have to be paid – or only one of them?
4) Income received by rental under French law could still go to my father tax free, however I presume that UK law would insist on treating this as UK income and it would therefore be liable to UK income tax in the normal way?
5) Would the rental income interest on the property in France that my father retained mean that inheritance tax would need to be paid in UK after my father’s death even though the property was fully owned by me?

Thank you for your assistance,
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.

Hi

 

Thanks for your questions

 

We can answer the UK tax positions here, but you would need to seek French tax advise for hoe this is treated in France,

 

If you would like to proceed, could you advise whether the property will be in your sole name for ownership purposes or in joint names?

And if in joint names, what share of the property will you each own? (so tenants in common or joint ownership)

 

 

 

Thanks

Sam

 

 

Customer: replied 3 years ago.

I understand that France and UK have a joint agreement about the management of tax affairs – therefore I trust you will be able to clarify how this joint agreement relates to the case I have outlined?


 


The property would be in the joint names of my wife and I (50/50), but not in the name of my father.


 


Thanks

Expert:  Sam replied 3 years ago.

Hi

 

Thanks for your responses

 

To answer your questions

1) Will the gift by liable to inheritance tax in UK if my father lives for more than 7 yrs. and his estate is valued over the £325K threshold?

No, as 7 years sees any gift fall out of consideration for Inheritance tax.
2) Will inheritance tax by liable in France on me as the beneficiary if the gift is over the French threshold of 100K Euros?

NO, as you fall within the UK tax jurisdiction on the gift, as both you and your father are UK residents.
3) Will both of the above have to be paid - or only one of them?

Neither as advised above.
4) Income received by rental under French law could still go to my father tax free, however I presume that UK law would insist on treating this as UK income and it would therefore be liable to UK income tax in the normal way?

In the UK, the rental income will be treated as you and your wifes, as you are the legal owners of the property, are residents in the UK, and have a duty to report worldwide income to the UK tax authorities, so you will have the responsibility of declaring each of your half shares to HMRC after each 5th April.

I will accept your expertise in French tax law, that any money then paid to your father can be paid free of French tax - but I am sure you and your wife as owners will be liable to French tax on the rents, from which you can declare this French tax suffered within your UK tax returns, under the UK/French tax treaty we have, so you do not suffer tax on the same income twice. So please do check your tax position within the French tax jurisdiction.
5) Would the rental income interest on the property in France that my father retained mean that inheritance tax would need to be paid in UK after my father's death even though the property was fully owned by me?

Not in the UK no, as the property is not owned by your father, and you would have be liable to the UK tax on the rental income, so there again would be no IHT consideration within the rental aspect of this property visited on your father.

But as he would in essence be in receipt of income that is not earned (paid by virtue of a property not owned by him) then HMRC will be interested in the fact he benefits from payments of income, that will be treated as being paid from you (and your wife) and at face value, it would appear that you are repaying your father back for the initial gift (making this a loan rather than a gift) or that he is generating income. And this you perhaps need to consider further, as your father could face being liable to UK tax, on this additional income.

 

Do feel free to ask any follow up questions

 

Thanks


Sam

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