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bigduckontax
bigduckontax, Accountant
Category: Tax
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Hi - My mother, who is not resident in the UK, is the beneficiary

Customer Question

Hi - My mother, who is not resident in the UK, is the beneficiary of a non-resident trust set up by her father (my grandfather). She wants to cash it out, and deposit it into my bank account here in the UK (we are both British citizens). The trust is "a fully discretionary, irrevocable, complex trust and it is resident in the British Virgin Islands". My question is whether or not I will have to pay any tax on the money or not? In the deed or appointment, termination and indemnity that the trustee has put together, I am also listed as a beneficiary so that the money can be deposited in my account.
Thank you for any assistance you can give me.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

It is your mother who would be liable to UK tax on the dissolution of the trust, if any. That is assuming that she is liable to UK Income Tax.

Any moneys given by her to you are outside the scope of UK tax. This would be the case if she lived in the UK too. However, by making the gift your mother may have created a Potentially Exempt Transfer under Inheritance Tax (IT) rules. A PET tapers off over 7 years and in the event of her demise within the period the gift will be added back to hr estate and be liable to IT. PETs are the first tranches liable to IT and if your mother's estate is insufficient to meet the tax it cascades down to the beneficiaries for immediate payment. However, that is UK tax law and depending upon your mother's exact UK tax status may not apply, but local taxation rules of a similar nature may. In certain countries (France in particular) there may be gift taxes to consider.

I do hope I have been of assistance. If your mother's estate is substantial she should seek appropriate professional advice as to its disposal or part thereof..
Customer: replied 3 years ago.

Thank you very much for your reply. Although my mother is a British citizen, she has never lived in the UK, and has never paid UK tax. Is the PET only applicable if she pays UK tax?

Expert:  bigduckontax replied 3 years ago.
Yes, I gave you the UK PET rules on a just in case basis. Your question was silent as to your mother's tax status. I suspect she is not UK domiciled for the purposes of UK tax and thus you can forget them. Local tax rules are often beyond the scope of we expert's knowledge.

Any gifts by your mother to you ar tax free in the UK in your hands until they start earning interest; you are taxed on that, of course.
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Expert:  bigduckontax replied 3 years ago.
Thank you for your support.
Customer: replied 3 years ago.

Sorry to bother you again, but I have one final question for you on this (I will add a bonus). Is the fact that I am named as a beneficiary in the wind-up deed (the deed or appointment, termination and indemnity) likely to be a problem? I assume that the trustees needed to do this in order to deposit the money in my account. I was never listed as a beneficiary in any other documents.

Expert:  bigduckontax replied 3 years ago.
No problem at all; you are effectively receiving a gift from your Mother and such gifts are outside the scope of UK taxation. Watch out for the PET though, see my earlier responses.
Expert:  bigduckontax replied 3 years ago.
Many thanks.

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