How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • Go back-and-forth until satisfied
    Rate the answer you receive.
Ask Peter Your Own Question
Peter
Peter, Chartered Tax Advisor
Category: Finance
Satisfied Customers: 137
Experience:  Director at PDS Tax Limited
105623467
Type Your Finance Question Here...
Peter is online now

To whom it may concern, I am not sure if my question should

This answer was rated:

To whom it may concern,
I am not sure if my question should be categorised under 'International Tax' or the more general 'Finance', but I am hoping that you will forward it to the appropriate person.
My partner and I have applied for a mortgage under the Shared Ownership scheme, and we have a telephone interview with the agent's financial advisor scheduled for Friday morning. We need to provide a number of documents by then, of which one in particular is 'Proof of savings and deposit and letter of any gifted money. (NB. For gifted money sums, those gifting would need to seek financial guidance from their own financial advisor)'
The first part is straightforward, but we find the part in brackets a bit confusing. From what we've been told, financial guidance is necessary to determine if any tax needs to be paid on the gifted sums. Our gifters will be my father and my partner's mother, both of whom live abroad (Serbia and Spain, respectively). Does gifted money for mortgage purposes get taxed and if so, how much? Does the amount taxed depend on the amount of gifted money? Are there any additional taxes involved if the money comes from abroad and if so, does it get taxed in the UK or in the country it originates from?
Any information you may be able to provide would be greatly appreciated.
Many thanks,
Marko

Hi, my name is ***** ***** I am a Chartered Tax Advisor. I am reviewing your query and will reply later today.

Hi Marko

For UK tax purposes gift of cash are not subject to income or capital gain tax provided the money is brought to the UK in the correct way but there are potentially income, capital gains and inheritance tax aspects to consider when bringing cash gifts to the UK.

The gifts are potentially subject to UK inheritance tax as potentially exempt transfers (PETs) but only if the persons making the gifts do not survive 7 years of the gift. If your your father and/or partner's mother are domiciled in the UK (i.e. permanent and habitual home is in the UK) then the PET cannot be avoided. Where they are not domiciled in the UK the gifts should be structured in the following way to avoid incurring a PET.

To avoid complications caused by mixing the gifts with other accounts you should therefore:

1. Open a new non-UK bank account (or use an unused one)

2. Relatives pay into this account

3. Then you transfer the money to the UK

This method also prevents other complications for income and capital gains tax caused by mixing the gifts with other sources of income.

This treatment applies regardless of the amounts involved.

If you have any follow up questions, I am happy to help. Otherwise please consider a 5 star rating for my answer.

Customer: replied 3 months ago.
Hi Peter,Many thanks for your reply, it is a detailed answer which has admittedly confused me a bit - no fault of yours as I asked for a thorough answer yet have little knowledge on tax. Do I correctly understand that, as long as we follow the 3 steps, we should be able to avoid paying tax on the gift money?
My partner has corrected me and said that the gift money from her mother is technically her own money that she gained when she separated from her (now ex) husband and sold her part of their joint flat to him. As she was living in the UK at the time and the flat was in Spain, it was simpler to just keep the money in her mother's existing account. Does that make any difference in terms of taxes?

Do I correctly understand that, as long as we follow the 3 steps, we should be able to avoid paying tax on the gift money? - yes, this is the safest way the gift can be structured and it applies to income tax, capital gains tax and inheritance tax.

Does that make any difference in terms of taxes? - not for you/your partner. It may affect the date the original gift was made however it does not affect how the gift should be brought to the UK i.e. via the three steps outlined already

I hope this is clear but please let me know if you have any further questions

Customer: replied 3 months ago.
Hi Peter,Regarding your reply: 'It may affect the date the original gift was made however it does not affect how the gift should be brought to the UK i.e. via the three steps outlined already', there was never a gift made - it is money my partner earned by selling her part of a property to her ex husband. One of the reasons I have brought this up in the first place is as we are unable to determine if it is more advantegous for our mortgage application to state that it is gifted money (for which we can avoid tax by following your 3 steps, but on the other hand it implies we are not managing to create our own savings), or that it is money belonging to my partner gained through a sale (demonstrates we can save money, but there might be an associated tax charged). I hope that clarifies what I am asking - which of the two options gives us the better chance of passing the mortgage application.I look forward to your reply. Kind regards,Marko

Hi Marko. Ok now I understand and will give it some thought. Please allow me to come back to you with an answer this evening.

Hi Marko. This is quite a bit more complicated than you originally outlined (not your fault though).

For UK tax purposes we would not categorise the money as a gift as derives from the sale of a property and seems to have been held by your partner's mother on trust.

If the sale of the 1/2 share of the property to your partner's ex husband took place within the UK tax year that they physically separated then no capital gains tax charge would have been applicable. If it was sold after the end of the tax year of separation then the sale should have been subject to capital gains tax at the time. Do you know if any tax was paid?

If she was not resident at the time of the sale the disposal would not have been subject to UK CGT anyway. However since you have said she was living in the UK it is likely she was. Tax residence is a complex area in itself.

I think this is sufficiently complicated that you need to formally get a UK tax advisor involved to make sure that no UK tax was due on the sale of the property to the ex husband. If any tax is due it needs to be calculated and reported to HMRC correctly. My concern is that if you use the money to buy a new house without factoring in tax that is payable on the sale of the house to the ex husband you may have a problem paying that tax and end up having to sell the new house you buy.

I am sorry that this might not be the best news... but better safe than sorry.

Kind regards, Peter

Peter and other Finance Specialists are ready to help you