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bigduckontax
bigduckontax, Accountant
Category: Tax
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Hi, I am UK domiciled but my wife is non-domiciled (although

Customer Question

Hi,

I am UK domiciled but my wife is non-domiciled (although she has a uk passport). We live in Andorra and are non resident for tax purposes. We own 2 properties in the UK as joint tenants and have a joint a stock trading account in the UK.

From hmrc:

"The lifetime limit on the amount that can be transferred exempt from IHT to a spouse or civil partner domiciled outside the UK (or treated as such for IHT purposes) will be increased from its current level of £55,000. Initially the cap will be raised to £325,000."

My question is how does this fit with the 7 year rule:

"Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for 7 years after making the gift."

If this is permitted it would seem to contradict the 'lifetime' cap.

Assuming this is allowed, regarding the property and stock trading account could the 'gift' be deemed to have been given on the purchase date of the property (ie gift of 50% of property) for example? And in this case assuming I survive for 7 years from this date then IHT would only be due on 50% of the property value?

Many thanks
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

On your death within 7 years of making the gift there would be Inheritance Tax (IT) implications. However unless your or your wife's UK estate exceeds 325K IT is zero anyway. The gift makes a Potentially Exempt Transfer (PET). PET's run off over 7 years on a taper. The gift would be assumed to be on the date your jointly acquired the property.

Unless the property in question exceeds 650K on either of your untimely deaths there would be no IT liability.

Has that eased your mind in this matter, I hope so?
Customer: replied 2 years ago.

 


With regards XXXXX XXXXX properties which are rented out is there any issue with the gift with reservation rules? Ie that it could be deemed that I am still benefiting from the gift? At the moment we receive the rent into an account which is only in my name - would it help in this matter for example if the rent was paid into a joint account? Or shouId I ensure that my wife's half of the rent is paid into a separate account in her name?

Expert:  bigduckontax replied 2 years ago.
As you are in joint ownership the rental should be split 50/50 anyway. This should reduce your individual tax loads as you will benefit from both of you, being British Citizens, having a personal allowance, currently, as you probably know, 10K. Gifts between spouses are outside the scope of UK taxation so the 'gift with reservation' rules don't kick in anyway, not indeed does the PET.
Customer: replied 2 years ago.

 


Hi,


 


We are both filing tax returns for 50% of the income. However, you may have overlooked that I am UK domiciles but my wife isn't. As I understand it in these circumstances, gifts are within the scope of UK taxation and GWR and PET does apply. If this is the case I guess I'm asking if it's likely if we are sharing the income and let's say it's going towards family expenses could HMRC take the view that I am benefiting from the gift to my wife. It occurs to me that this may require a legal opinion?

Expert:  bigduckontax replied 2 years ago.

Yes, but the cap has been raised to 325K so unless the property is of very substantial value you will be out of the wood anyway and the GWR and PET rules irrelevant. By all means seek legal advice, but it won't come cheap and will have to be from a solicitor or barrister who has extensive practice in this field. Of course, these days you can go direct to a barrister.

 

By the way, you should be on the Non-Resident Landlord Scheme and your tenants or your letting agents should be deducting tax at 20% from the rentals and paying that direct to HMRC.

Customer: replied 2 years ago.

 


Hi,


 


Yes our property is over 325K and given that average house prices in London are 362K according to Nationwide it's a little bit amiss to give advice making the assumption you did without qualifying that's what you did. As it is you have given incorrect information.


 


I have qualified for the NRL scheme and once you have done so there is no tax deduction necessary by the agent or tenant - that's the whole point of the scheme.


 


 

Expert:  bigduckontax replied 2 years ago.
The NRL scheme does require letting agents or in the absence of one, the tenant, to deduct Income tax and render it to HMRC. So there is a tax deduction required unless a form NLT1i has been completed. rendered to HMRC and approved.

I may have made an assumption, but it was a qualified assumption.

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