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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I'm about to receive an offshore settlement and will be

Customer Question

I'm about to receive an offshore settlement and will be keeping it offshore for remittance purposes, let's assume the settlement is pregnant with just CGT and I'm a UK resident. My questions is; I have a second cousin who is willing to become non-resident in the Bahamas, if I gift them the money when they're non-resident, can they gift me some money back annually (or any other frequency) without me incurring foreign income tax and / or the CGT?
My inclination is that as long as it's offshore, not remitted to the UK and the gift is made offshore the CGT liability goes. As far as the money coming back in, as the money is gifted the second cousin is completely legally entitled to all of the money. Therefore, any gift back is upon their esteem. This would mean that the gift I could receive would be treated as a capital gift, from a non-resident and therefore no liable for foreign income tax?
Submitted: 1 month ago.
Category: Tax
Expert:  bigduckontax replied 1 month ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be bale to help you with your question.

The UK has no Gifts Tax regime so gifts are outside the scope of UK taxation. There is no personal taxation in the Bahamas. Thus the scheme you propose is in theory tax free, but should HMRC become aware of what is going on they will view the transactions with a rather jaundiced eye and regard the arrangements as tax avoidance regarding the settlement.

If substantial sums are involved here I would tend to run this across a tax accountant with an extensive international practice.

I do hope that I have been able to shed some light on the position.

Customer: replied 1 month ago.
We will be however I simply wanted to view this in principle and ensure we're not in the evasion department - rather than avoidance.
Many thanks.
Expert:  bigduckontax replied 1 month ago.

Delighted to have been of assistance.

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

Customer: replied 1 month ago.
I'm a little-confusedCustomer could you expand a little on the reasoning for your above conclusion.
As far as I can see, when a gift is made, pregnant with CGT this becomes chargeable. For the purpose of this example let's say it's £3 Million. Why does this not incur the CGT bill? I understand your above point, however can't see how the gift does not trigger a chargeable transfer?
Customer: replied 1 month ago.
Please assume on the above the giftor is UK resident, giving to a non-resident.
Expert:  bigduckontax replied 1 month ago.

Then it is a gift and the UK has no gifts tax regime so no tax is due. However, do not forget the possible Potential Exempt Transaction (PET) liability should the donor die within seven years of the gift. I have to go out now, but will be back before lunch time and expand on my answer then, sorry..

Customer: replied 1 month ago.
HiCustomer
Any expansion ... ?
Expert:  bigduckontax replied 1 month ago.

Yes, apologies. A PET is created in the donor's Inheritance Tax (IHT) affairs. PETs run off at a taper over seven years and in the event of the donor'd decease within this period are added back to their estate for IHT purposes. PETs are the first to suffer IHT and if the estate is insufficient to meet the tax on the PET the liability cascades down to the beneficiary for immediate payment.

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