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bigduckontax
bigduckontax, Accountant
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I am permanently resident in UK. Now I want to sell a

Resolved Question:

I am permanently resident in UK. Now I want to sell a property in India, which I bought nearly 20 years ago and want to bring the proceeds to UK. I want to gift the proceeds to my son who is also permanently in UK. I want advice as to how to minimise the tax.
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.

Was this property in India the only domestic residence owned by you? In what accommodation do you live in whilst resident in the UK?

Once I know this I can address your question fully.

Customer: replied 1 year ago.
In UK I have my own property to live in and also some investment properties.
Customer: replied 1 year ago.
I would prefer e mail response as I have hearing difficulty.
Expert:  bigduckontax replied 1 year ago.

You will be liable for UK Capital Gains Tax (CGT) on the gain made on the sale of your Indian property. You have an Annual Exempt Amount (AEA) of 11.1K to offset this gain. This gain may also be liable to Ind***** ***** Term CGT [20%], however, under the Double Taxation Treaty between the UK and India any tax paid in India is allowed as a tax credit against a similar liability in the UK.

Bringing the money realised from this sale to the UK presents no problems, just warn the incoming bank of the amount and its source to preclude any money laundering inquiries a large transfer might attract.

The UK has no gifts tax regime. Thank your lucky stars you don't live in France where gifts tax kicks in at 5K Euros. The gift to you son is therefore tax free, but does create a Potentially Exempt Transfer (PET) in your Inheritance Tax (IT) affairs. PETs run off at a taper over seven years and in the event of your decease within this period are added back to your estate for IHT purposes. PETs are the first to suffer IHT and if your estate is insufficient to meet the IHT on the PET then the liability cascades down to the beneficiary for immediate payment. IHT does not, or course, start until your estate reaches 325K. The classic defence against a PET is a reducing term life insurance policy.

I do hope that you have found my reply of assistance.

.

Customer: replied 1 year ago.
Thank you. Now I have a series of questions regarding this. I will ask these one at a time.1. The property was bought in instalments as it was still under construction at the time. The money was being paid to 2 companies, almost 50% each. I was told that it was the normal for buying in India. only It was only when I got the possession of the property, that I discovered that one of the companies was the vendor and the lease document recorded only half the purchase price. The money given to the other company was not recorded. I understand now that the money given to the other company was off the record. When I fill up UK tax return, can I claim as the purchase price both the recorded and unrecorded money spent?
Expert:  bigduckontax replied 1 year ago.

Yes.

Customer: replied 1 year ago.
2. The money was sent to India in pound sterling to be converted in Indian rupees as the price was in rupees. The pound-rupee used to be different every time the instalment was paid. Purchase was completed by 1998 and the average rate was Rs60 per pound. Now the rate is about Rs82 per pound. Am I allowed to upgrade my purchase price based on the present rate? Alternatively, can I downgrade my selling price to bring it in line with the purchase price. What would be advantageous to me?
Expert:  bigduckontax replied 1 year ago.

You should normally use the HMRC conversion rate, however a historic record can be found here:

https://www.travelex.co.uk/currency/currency-pairs/gbp-to-inr

You use the rate applicable to the time of purchase or sale.

Customer: replied 1 year ago.
3. I want to be able to sell the property in year 16/17. The tax years are similar both in India and in UK. Soon after I want to repatriate money to UK. However, if I delayed repatriating the money to next tax year would it make any difference to my gains tax liability?
Expert:  bigduckontax replied 1 year ago.

Not a scrap, it is the date of sale which triggers the CGT liability in both countries..

Customer: replied 1 year ago.
In that case what exchange rate do I use? Is it the rate at the date of sale or date of repatriation of money?
Expert:  bigduckontax replied 1 year ago.

For tax purposes, the date of the sale.

Customer: replied 1 year ago.
In India repatriation does not happen the same day as there are some formalities to be completed. If the rupee is stronger against the pound on the date of sale, but gets weaker on the date of repatriation, I may suffer a loss. Is this inevitable?
Expert:  bigduckontax replied 1 year ago.

Unfortunately, yes; the GBP is weak at present following the Britexit referendum decision. Of course, if it picks up you could make a profit.

Customer: replied 1 year ago.
NO, it is the other way round. I make a profit if the pound gets weaker.
Expert:  bigduckontax replied 1 year ago.

Whichever way the exchange rate cat jumps will male a difference to the numbers.

Customer: replied 1 year ago.
For last 18 years I have been paying service charges and property tax. Can I claim these to work out gains tax?
Expert:  bigduckontax replied 1 year ago.

Possibly, but that is an Indian Taxation matter and this is an essentially UK tax advice site.

Customer: replied 1 year ago.
Final question: I want to gift the proceeds of the sale to my son. Roughly £50000. But I also have an interest free loan of £150,000 from him. The loan is payable at my discretion any time during my life time or it becomes a debt on my estate when I die. The question is: Will this gift of £50000 be treated as PET or it would be treated as a reduction of my debt by IR?
Expert:  bigduckontax replied 1 year ago.

The Inland Revenue ceased to exist many years ago on amalgamation with HM Customs and Excise to form HMRC. If you state when paying him the 50K that it is a part repayment of the debt owing to him then it will be outside the scope of UK taxation and no PET will be created. I would suggest that you put that in writing when paying him.

Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 1 year ago.
I do not want it as a part payment of my debt. I want it as an outright gift of £50,000 and don`t want HMRC to treat as a part repayment. How do I achieve this?
Expert:  bigduckontax replied 1 year ago.

Then when making the gift write to the beneficiary telling him the payment is a gift. Keep a copy so your executors/administrators will know that a substantial lifetime gift has been made. It can then be taken into account if the PET has not run off.

Customer: replied 1 year ago.
Thank you.
Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance.

Please don't forget my rating.

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Expert:  bigduckontax replied 1 year ago.

Thank you for your support.