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TonyTax
TonyTax, Tax Consultant
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In year 2001 my wife and I purchased a property in a non EU

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In year 2001 my wife and I purchased a property in a non EU country.
For purposes of tax I became permanantly resident in that country -my wife did not.
We are now considering making a "donation" of this property to our son ( UK resident)/ There is no tax on either gifts or capital gains in this country where a property is "gifted".
The question is, ....... is there any CGT liability for wife in the UK although no money has changed hands and no value is put on the deeds when they are altered.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

Before I answer your question, can you clarify your domestic situation please. Are you and your wife separated? I ask because you say that you became resident in the country where the property is. If you are not separated, do you have a home in the UK that you both live in? Did you elect for one of the properties to be treated as your main residence within two years of acquiring the second?

Customer: replied 2 years ago.

No- I am not separated from my wife. Her home in UK is in her own name and is her principal primary residence.

I have no home or property in the UK.and have not lived there for 14 years. She gifted me her share of the offshore residence in 2002.

Expert:  TonyTax replied 2 years ago.

Thanks.

You say that your wife gifted you her share of the overseas property in 2002. Have you owned it solely since then?

Expert:  TonyTax replied 2 years ago.

Your question suggests that the offshore property is owned jointly but in your recent post you said that your wife gifted you her share of the offshore residence to you in 2002.

I asked about your marital situation since a married couple can only have one designated main residence between them.

For UK tax purposes, if you give the property to your son, it will be a gift for Inheritance Tax purposes and a disposal for Capital Gains Tax purposes at its open market value.

So long as the sole owner or a part owner lives for at least seven years after making the gift, their share of any gift will fall out of their respective estates for Inheritance Tax purposes.

The gain on the disposal of a property is calculated by deducting the sum of the purchase price and associated costs of buying and selling it from the deemed disposal proceeds. The first £11,000 of your respective shares of the gain will be exempt from CGT with the balance being taxed at 18%, 28% or a combination of the two rates depending on the level of your respective incomes in the tax year of disposal.

If you are claiming to be non-UK resident for tax purposes, then your share of the gain will escape UK tax so long as you don't re-establish UK tax residence before you gift it to your son. Your wife's share of any gain will be taxable as she is resident in the UK.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Many thanks for this but just a few more points to clarify.

Your question suggests that the offshore property is owned jointly but in your recent post you said that your wife gifted you her share of the offshore residence to you in 2002. It was purchased jointly but later, on consideration, my wife gifted it to me. I have this in writing and witnessed.

I asked about your marital situation since a married couple can only have one designated main residence between them.= YES but surely this only relates to couples who both reside in UK ? - but I am NOT UK Resident now for 14 years. My wife owns her own home in UK and is NOT offshore resident and since she no longer has an interest then the comment is irreleavnt ?

For UK tax purposes, if you give the property to your son, it will be a gift for Inheritance Tax purposes and a disposal for Capital Gains Tax purposes at its open market value.

So long as the sole owner or a part owner lives for at least seven years after making the gift, their share of any gift will fall out of their respective estates for Inheritance Tax purposes.

The gain on the disposal of a property is calculated by deducting the sum of the purchase price and associated costs of buying and selling it from the deemed disposal proceeds. The first £11,000 of your respective shares of the gain will be exempt from CGT with the balance being taxed at 18%, 28% or a combination of the two rates depending on the level of your respective incomes in the tax year of disposal. So – do you infer that although I receive no capital gain on this donation I would still be liable for a tax on a purely notional liability were I to die before 7 years ?

If you are claiming to be non-UK resident for tax purposes, then your share of the gain will escape UK tax so long as you don't re-establish UK tax residence before you gift it to your son. Your wife's share of any gain will be taxable as she is resident in the UK. But, as I re-iterated, my wife no longer has an interest in the property concerned so I assume there is no tax liability on her part?

I hope this helps but let me know if you have any further questions.

Regards,

James

Edited by TonyTax on 02/08/2014 at 19:09 EST

Expert:  TonyTax replied 2 years ago.
The property is yours. As your wife gifted you her share, she no longer has an interest so she can have no tax liability from its disposal.

I was merely clarifying why I asked about your marital situation in my initial info request. It is irrelevant in this case but the fact remains that unless a marriage has broken down, a married couple can only have one main residence between them even if they live in different countries.

The seven year period relates to Inheritance Tax, not Capital Gains Tax. However, where a gift occurs between two "connected persons" which you and your son are, the transaction is deemed to be a disposal at the open market value and there may be CGT implications for the donor, you in this case. As you are not UK resident, any "gain" will escape CGT so long as you don't become UK resident before you give the property away.
TonyTax, Tax Consultant
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Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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