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bigduckontax
bigduckontax, Accountant
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I need some advice regarding the UK Tax implications of a

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I need some advice regarding the UK Tax implications of a Spanish property which is currently in my Mum’s name, and currently valued at €539kAs concisely as I can describe it, my Mum wants to give the property to me. The choices are(a) a gift, with no money exchanging hands;
(b) a purchase, with a traceable exchange of funds in Spain which must be very close to the stated value;
(c) an inheritance.We have a Spanish solicitor in London whom we have instructed to advise us. He has advised us of the Spanish tax payable in each circumstance, which I summarise as(a) A huge amount (My Mum’s CGT: €93k, and my Gift tax: €107k and Municipal Tax: €12k - all payable immediately)
(b) A very large amount (My Mum’s CGT: €93k, and my Purchase tax: €45k and Municipal Tax: €12k - all payable immediately.
(c) Almost nothing - according to current legislation.My only possible source of funds for a possible purchase, and to pay the Spanish taxes would be a loan or a gift from my Parents.I understand that any gift of property or funds made by my Mum or both my parents will have a IHT liability if they die within 7 years – however I do not understand how the Anglo-Spanish double taxation agreement relates to any of the above options.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Although the UK has no gifts tax regime as such, a gift by a person of this magnitude creates a Potentially Exempt Transfer (PET) in their IHT affairs. PETs run off at a taper over seven years and in the event of a decease within this period are added back to their estate for IHT purposes. PETs are the first to suffer IHT and in the event of the deceased's estate being insufficient to meet the tax on the PET the liability cascades down to the beneficiary for immediate payment. The classic defence against taxation on the PET is a reducing term life insurance policy, but the age of the insured may make the premiums prohibitive. IHT does not kick in until 325K and this is inflated by any inter spousal or charitable bequests and is levied at a 40% flat rate. Loans are not PETs, but any interest paid on the loan would be income for Income Tax purposes in the recipient's hands. The UK and Spain have a double taxation Convention which, in basic terms, precludes taxes being levied in both jurisdictions on the same transaction. This is achieved by means of tax credits, the tax paid in one country being allowed against any liability in the other. The Convention does not, however, protect you from differences in rates of taxation. The Convention covers: 'The existing taxes to which the Convention shall apply are in particular: a) in Spain:(i) the income tax on individuals;(ii) the corporation tax;(iii) the income tax on non residents;(iv) the capital tax; and(v) local taxes on income and on capital;(hereinafter referred to as “Spanish Tax”); b) in the United Kingdom:(i) the income tax;(ii) the corporation tax; and(iii) the capital gains tax;' Although the convention is there its application would effectively only apply to the capital taxes in Spain and particularly to the UK CGT applicable on your parent's disposal of the property unless Private Residence Relief (PRR), were it their sole or main domestic residence, applied which relieves UK CGT at 100%. I do hope that I have shed some light on your conundrum. Please do not hesitate to follow up on this thread if you require more guidance.
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Customer: replied 1 year ago.
So if I have understood you correctly -this is where we are:
A) Gift - my Mum would effectively have made a PET of €539k + €107k +€12k = €658k
B) Purchase - my Mum would effective have made a PET of €539 + €45 +€12k = €594k
C) Inheritance - it would add to €539 my Mum's estate (or more if the value increases)Question 1: How would our friends at HMRC choose value the PET in sterling in terms of current and future exchange rates?My parents total estate (including UK property and shares) is probably in the region of £2m. The Spanish property is in my Mum's sole name and there is a Spanish will which makes me the sole inheritor of that - so...Question 2: In the case that my Mum pre-deceases my Dad, what happens to her IHT allowance in regards ***** ***** Spanish property?Question 3: you say that Loans are not a PET - but would the loan have to be repayable on death for this to be the case?Thanks
Ray
Expert:  bigduckontax replied 1 year ago.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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