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bigduckontax, Accountant
Category: Tax
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Our daughter is a surgical trainee employed by the NHS. She

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Our daughter is a surgical trainee employed by the NHS. She has been awarded a six year training contract commencing on the 1st of October 2014. She is currently a surgical Senior House Officer employed by the NHS in Bristol. Her 6 year contract will be London based, she will be employed initially at St Mary's Hospital as a Registrar. After the 11 years medical training to date she has no debt and some tens of thousands of savings but not sufficient to purchase a suitable property in London without financial help which my wife and I will willing gift to her. She wants to take advantage of the Govt Help to Buy Scheme which now limits her to a maximum mortgage loan of 4.5 times income. We would like to provide this help in part by a single gift of capital and also by supplementing her income by monthly payments to effectively increase her declared income for Help to Buy approval purposes. We would be willing to covenant such payments for say 3 to 5 years. Another thought is to simply contract to pay her a fixed amount monthly for medical advice (already freely and frequently given) to our large family. Any payments may be given by my wife and I personally or from our Investment Company. My wife and I have been resident on the Isle of Man for tax purposes since 1992 and our Investment Company is also registered in The Isle of Man.
Presumably the gift of capital to our daughter would not be subject tax however with regard to any income would we need to deduct tax at the standard UK rate of 20% and account for it to HMRC or would she simply add it as a source of income on her personal tax return.
Would a simple contract suffice to authenticate any income payments or would a Deed of Covenant say for 3 years be preferable?
I realise the Help to Buy Agency should have no objection to the proposed capital payment however do you consider that supplementing our daughter's income by an amount of say £750 to £1000 per month would be accepted by them as reasonable and if so which approach would you favour?
Thanks and best wishes, Geoff.
Hello Geoff, I'm Keith and happy to help you with your question.
Right, let us get rid of the easy bit first. The outright gift is outside the scope of UK taxation. The gift will create a Potentially Exempt Transfer (PET) for Inheritance Tax (IT) purposes in your UK estate. Should there be a death within 7 years of the gift the PET, which runs off at a taper, will be added back to the deceased's estate for IT purposes. PETs are the first to suffer IT and if the estate is unable to meet the tax then it cascades down to the beneficiary for immediate payment. However as the gift is coming from the IOM there may be no UK IT involved. That has got rid of the gift.
The Isle of Man, as you are probably aware, is not part of the EU, although the IOM government tends to apply many EU rules. You will need to consult a local professional as the the effects of your monthly income proposals and whether tax deductions are appropriate. I am of the opinion that these will be income in your daughter's hands. You must, in my view, run this across an IOM professional.
So sorry to be a bit vague, but this is an UK taxation site.
Customer: replied 3 years ago.

Your advice has not helped me. I had hoped you would have suggested which of the two income approaches you would favour and the appropriate authentication either simple contract or deed.

I did not doubt what you describe as the 'easy bit'

I will opt out and hope that one of my colleagues may be able to help.
Whichever income approach you use is effectively an irrelevance. If you use a Deed of Covenant you are bound to continue the payments for the period covered by the deed.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4791
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