Taxes Payable on Foreign Inherited Property

[Soft Top]

At present I am looking at the benefits of buying a share in my parents-in-law's property in South Africa over their using an equity release scheme over there.

Assuming that the interest/captial benefit equations stack up would there be an implication for CGT or any other taxes on my wife inheriting the property at some point in the future.

Secondly, assuming we trust her parents, would we be better making a loose arrangement of gifting them money, (tax implications over here for say £20000???), or making a formal arrangement that may be subject to UK tax in the future?

Obviously unless we don't have any accountants in SA, (I will also post a similar thread in the SA section on PH), what do our gurus think to the above?

Thanks in advance.

[Eric Mc]

Is your wife British?

Is she resident in the UK?

Is she domiciled in the UK?

The normal position for a UK Domiciled Tax Resident is that they are taxable in the UK on their worldwide income. That would incude Capital Gains Tax on the disposal of foreign assets.

[Soft Top]

Eric Mc said:

Is your wife British?

Is she resident in the UK?

Is she domiciled in the UK?

The normal position for a UK Domiciled Tax Resident is that they are taxable in the UK on their worldwide income. That would incude Capital Gains Tax on the disposal of foreign assets.

Yes British, resident and domiciled in the UK.

As the inheritance would not have been covered by UK inheritance tax would the whole amount be counted as a capital gain or only from the point the property was inherited?

Thanks.

[loafer123]

You need to also look at the tax treaty between South Africa and the UK to check that tax paid in SA can be offset against tax due in the UK...

[Eric Mc]

Capital Gains Tax is charged when a capital asset is disposed of and a gain is made. If the individual's total gains in the tax year exceeds the annual Capital Gains Allowance (2007/08 - £9,200, 2006/07 = £8,800)then some tax will be payable.

The gain is usually calculated by deducting the purchase cost from the disposal proceeds. If an asset was "inherited" rather than purchased, then the Market Value of the asset at the date it was acquired is used instead of a purchase price.

There are other factors such as length of time of ownership, enhancement expenditure etc which may go some way to mitigate or even wipe out the chargeable gain arising.

[Soft Top]

loafer123 said:

You need to also look at the tax treaty between South Africa and the UK to check that tax paid in SA can be offset against tax due in the UK...

Eric Mc said:

Capital Gains Tax is charged when a capital asset is disposed of and a gain is made. If the individual's total gains in the tax year exceeds the annual Capital Gains Allowance (2007/08 - £9,200, 2006/07 = £8,800)then some tax will be payable.

The gain is usually calculated by deducting the purchase cost from the disposal proceeds. If an asset was "inherited" rather than purchased, then the Market Value of the asset at the date it was acquired is used instead of a purchase price.

There are other factors such as length of time of ownership, enhancement expenditure etc which may go some way to mitigate or even wipe out the chargeable gain arising.

Thanks for that. I'll check into any tax treaty between the two.