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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5142
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I am a US citizen living in the UK and I have UK

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I am a US citizen living in the UK and I have UK citizenship. A relative would like to gift me a US capital-gain mutual fund worth nearly $40k. I have two options but I want to know the tax implications of both, once I liquidate the funds (which is my intention):
(1) I open an account with the mutual fund company and my relative transfers the fund to me, after which I liquidate;
(2) my relative liquidates the fund on his end, and gives me the amount (and keeps a portion to cover his tax bill).
Could you advise?

Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.

Customer: replied 1 year ago.
Great, thanks.

Thank you for your question..

I feel you should go for option 2 and let your relative take care of the tax implication of cashing in the mutual fund.

When the cash is transferred to you in the UK, as recipient of a gift you would get it free of tax as there is no gift tax in this country.

Once you invest this sum here and then any future gains or interest would be subject to taxation in the UK.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 1 year ago.
That's great, thanks! If I could ask you, though, so I'm clear: what would be the pitfall of transferring the fund itself?Second, if my relative were to give me the money as a loan (because I feel I ought to repay him eventually), would the loan incur any tax?

Thank you for your reply.

If the fund is transferred then you would be responsible for tax payable if any on encashment of it. YOu will report the gain on your tax return.

A gift does not have to be reported on a tax return.

A loan and repayment of it are out of scope of income tax.

I hope this is helpful.

Customer: replied 1 year ago.
Thanks again for your prompt reply. A final question (if I may): would you happen to know the rate of the tax payable upon encashment? And would I incur taxes in both US and UK (or just US, if this is a gift)?

Thank you for your reply.

A capital gain would attract tax at 10%, 20 % or a combination of both depending on your taxable income including the gain. You claim gain allowance of £11,100 against the gain before CGT is calculated.

There may be taxes payable in US but then you claim foreign tax credit relief against taxes suffered there as being a UK resident you are taxed on worldwide income and gains.

No gift tax in the UK.

I hope this is helpful and answers your question.

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