Sale of Land abroad - UK Tax implications
Discussion
Hypothetical scenario
There is a sale of farmland somewhere not in the EU. The bloke selling is aged 70 and retiring from farming. The bloke buying the land lives in the UK and wants to build a holiday home.
The seller intends to gift the money to his kids who are resident in the UK. As the buyer lives in the UK he is happy to pay the kids directly via cheque or bank transfer.
What are the tax implications (if any) for the kids receiving the money? Let’s assume there are no tax issues abroad. The kids are basically receiving a chunk of their inheritance early.
Thanks for all advice
There is a sale of farmland somewhere not in the EU. The bloke selling is aged 70 and retiring from farming. The bloke buying the land lives in the UK and wants to build a holiday home.
The seller intends to gift the money to his kids who are resident in the UK. As the buyer lives in the UK he is happy to pay the kids directly via cheque or bank transfer.
What are the tax implications (if any) for the kids receiving the money? Let’s assume there are no tax issues abroad. The kids are basically receiving a chunk of their inheritance early.
Thanks for all advice
My very crude and limited understanding of this is that IHT is generally defined by the deceased’s country of domicile. So if HMRC consider the person domicilednin the UK then UK IHT applies but otherwise it is their local taxes that prevail. That is my basic understanding which could be 100% wrong.
If this is the case then getting the buyer to make a transfer to two unconnected parties is basically just a mechanism to save a few quid on fx fees by exchanging that small cost for a potential world of hassle and cost for no great reason. Does the buyer shoot himselfnin the foot by agreeing a price that he never actually pays to the vendor? Do the children end up with PETs based on the health of a random stranger? Etc etc
Depending where the vendor lives then fx costs can be avoided by simply setting up a gbp account in their name in a non UK jurisdiction?
If this is the case then getting the buyer to make a transfer to two unconnected parties is basically just a mechanism to save a few quid on fx fees by exchanging that small cost for a potential world of hassle and cost for no great reason. Does the buyer shoot himselfnin the foot by agreeing a price that he never actually pays to the vendor? Do the children end up with PETs based on the health of a random stranger? Etc etc
Depending where the vendor lives then fx costs can be avoided by simply setting up a gbp account in their name in a non UK jurisdiction?
@DonkeyApple
One reason why the vendor wants the payment to be made in the UK is because the country where he lives applies currency controls. The amount of currency that can be changed into Sterling is limited so it would take years for him to send the money to his kids .
Vis-a-vis legality there are no tax issues. The primary purpose of doing the transaction in the UK would be just for currency reasons. Both the buyer and seller will have a signed notarised agreement outlining the transaction
One reason why the vendor wants the payment to be made in the UK is because the country where he lives applies currency controls. The amount of currency that can be changed into Sterling is limited so it would take years for him to send the money to his kids .
Vis-a-vis legality there are no tax issues. The primary purpose of doing the transaction in the UK would be just for currency reasons. Both the buyer and seller will have a signed notarised agreement outlining the transaction
Countdown said:
@DonkeyApple
One reason why the vendor wants the payment to be made in the UK is because the country where he lives applies currency controls. The amount of currency that can be changed into Sterling is limited so it would take years for him to send the money to his kids .
Vis-a-vis legality there are no tax issues. The primary purpose of doing the transaction in the UK would be just for currency reasons. Both the buyer and seller will have a signed notarised agreement outlining the transaction
Why do the funds need to be paid to a bank account located in that country? So long as all taxes are paid etc then the funds can go to a bank account in the recipient’s name in another jurisdiction? One reason why the vendor wants the payment to be made in the UK is because the country where he lives applies currency controls. The amount of currency that can be changed into Sterling is limited so it would take years for him to send the money to his kids .
Vis-a-vis legality there are no tax issues. The primary purpose of doing the transaction in the UK would be just for currency reasons. Both the buyer and seller will have a signed notarised agreement outlining the transaction
If there is a legal issue in that regard then diverting the payment to third parties would equally fall foul.
Donkeyapple
1. They DONT need to go to a bank account in the recipients country. However he doesn’t have a UK bank account. And, as the intention is to pay the money to his kids, the question is can he have the money paid direct to them.
2. If the money is paid from one UK account to ANOTHER UK account I’m not sure why the country where the transaction takes place has anything to do with it.
1. They DONT need to go to a bank account in the recipients country. However he doesn’t have a UK bank account. And, as the intention is to pay the money to his kids, the question is can he have the money paid direct to them.
2. If the money is paid from one UK account to ANOTHER UK account I’m not sure why the country where the transaction takes place has anything to do with it.
By declaring a lower sales value, the seller may benefit from reduced taxation which is outside the scope of the question.
However Countdown or the hypothetical buyer would potentially be exposed to higher CGT on the eventual sale of the land because it may be difficult to prove that the purchase price of the land was more than that transferred locally (potentially zero?), thus inflating any profit at that point in future. The price declared by the seller (perhaps deceased when the buyer comes to sell) will be so low (perhaps zero), that the future transaction will likely be under more scrutiny than other property locally.
The advantages of this type of off-book agreement lie with the seller. The disadvantages lie with the buyer. Proceed only if the price etc reflect that.
However Countdown or the hypothetical buyer would potentially be exposed to higher CGT on the eventual sale of the land because it may be difficult to prove that the purchase price of the land was more than that transferred locally (potentially zero?), thus inflating any profit at that point in future. The price declared by the seller (perhaps deceased when the buyer comes to sell) will be so low (perhaps zero), that the future transaction will likely be under more scrutiny than other property locally.
The advantages of this type of off-book agreement lie with the seller. The disadvantages lie with the buyer. Proceed only if the price etc reflect that.
Countdown said:
Donkeyapple
1. They DONT need to go to a bank account in the recipients country. However he doesn’t have a UK bank account. And, as the intention is to pay the money to his kids, the question is can he have the money paid direct to them.
2. If the money is paid from one UK account to ANOTHER UK account I’m not sure why the country where the transaction takes place has anything to do with it.
It’s about how you legally arrange what is a third party payment to tie in with the asset sale so as to not trigger a tax issue for the UK recipients. Ie on the surface the buyer is simply gifting a sum of money to two unconnected parties and that could be deemed a PET?1. They DONT need to go to a bank account in the recipients country. However he doesn’t have a UK bank account. And, as the intention is to pay the money to his kids, the question is can he have the money paid direct to them.
2. If the money is paid from one UK account to ANOTHER UK account I’m not sure why the country where the transaction takes place has anything to do with it.
By just opening a Sterling account in the Jersey branch of a local bank (or similar) in the vendor’s name then the buyer can pay who should be paid and the vendor can distribute as they wish without any currency or tax implications.
I think the key to the answer lies in what the tax risks are that arise, if any, from a third party in the UK gifting funds to others in the UK and if that transaction requires legally defining then the vendor just opening an offshore GBP a/c probably becomes easier and more straightforward?
sideways sid said:
By declaring a lower sales value, the seller may benefit from reduced taxation which is outside the scope of the question.
However Countdown or the hypothetical buyer would potentially be exposed to higher CGT on the eventual sale of the land because it may be difficult to prove that the purchase price of the land was more than that transferred locally (potentially zero?), thus inflating any profit at that point in future. The price declared by the seller (perhaps deceased when the buyer comes to sell) will be so low (perhaps zero), that the future transaction will likely be under more scrutiny than other property locally.
The advantages of this type of off-book agreement lie with the seller. The disadvantages lie with the buyer. Proceed only if the price etc reflect that.
I certainly can’t see any benefit to the buyer in not transferring the funds to pay for the asset directly into an account in the name of person selling the asset. However Countdown or the hypothetical buyer would potentially be exposed to higher CGT on the eventual sale of the land because it may be difficult to prove that the purchase price of the land was more than that transferred locally (potentially zero?), thus inflating any profit at that point in future. The price declared by the seller (perhaps deceased when the buyer comes to sell) will be so low (perhaps zero), that the future transaction will likely be under more scrutiny than other property locally.
The advantages of this type of off-book agreement lie with the seller. The disadvantages lie with the buyer. Proceed only if the price etc reflect that.
sideways sid said:
By declaring a lower sales value, the seller may benefit from reduced taxation which is outside the scope of the question.
However Countdown or the hypothetical buyer would potentially be exposed to higher CGT on the eventual sale of the land because it may be difficult to prove that the purchase price of the land was more than that transferred locally (potentially zero?), thus inflating any profit at that point in future. The price declared by the seller (perhaps deceased when the buyer comes to sell) will be so low (perhaps zero), that the future transaction will likely be under more scrutiny than other property locally.
The advantages of this type of off-book agreement lie with the seller. The disadvantages lie with the buyer. Proceed only if the price etc reflect that.
Nobody has proposed declaring a lower sales value.However Countdown or the hypothetical buyer would potentially be exposed to higher CGT on the eventual sale of the land because it may be difficult to prove that the purchase price of the land was more than that transferred locally (potentially zero?), thus inflating any profit at that point in future. The price declared by the seller (perhaps deceased when the buyer comes to sell) will be so low (perhaps zero), that the future transaction will likely be under more scrutiny than other property locally.
The advantages of this type of off-book agreement lie with the seller. The disadvantages lie with the buyer. Proceed only if the price etc reflect that.
It’s their “inheritance in advance” so basically a gift from a parent who lives overseas. Therefore not sure why CGT would apply
Countdown said:
Hope that clarifies this hypothetical situation. The only question is
“What would be the tax implications of B paying the money to A’s kids, assuming that everything is supported by legal paperwork to confirm that its above board?”
What’s to stop the seller from contracting a UK law firm to receive the funds in escrow and then distributing?“What would be the tax implications of B paying the money to A’s kids, assuming that everything is supported by legal paperwork to confirm that its above board?”
That way the buyer is out of the equation because without the funds passing legally through the seller’s hands there is surely a PET risk plus the fact the buyer would be a little bonkers to enter into such a transaction?
DonkeyApple said:
What’s to stop the seller from contracting a UK law firm to receive the funds in escrow and then distributing?
That way the buyer is out of the equation because without the funds passing legally through the seller’s hands there is surely a PET risk plus the fact the buyer would be a little bonkers to enter into such a transaction?
Nothing to stop that.That way the buyer is out of the equation because without the funds passing legally through the seller’s hands there is surely a PET risk plus the fact the buyer would be a little bonkers to enter into such a transaction?
Thanks
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