International early inheritance - so many questions!

deewee1611

I posted this earlier in Pensions, Annuities & Retirement Planning - please delete where not appropriate!

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Hi everyone,

sorry far the lengthy post, but I over Christmas had a few discussions which left me very confused. I appreciate any pointer in the right direction since I am completely clueless with inheritance, first time I thought about it was 4 days ago - so please give me the easy treatment! :-)

Better start with the basics:
- I am a dual national (no idea if this makes any difference in this context: UK/German, UK resident), my father is German and living in Germany, divorced from my mother, who is a UK national, living in the UK. I have a half-sister who is living in Germany.
- I am in my 40s, my farther in his 60s, just retiring and sorting out his financial "stuff" - which is what started his thinking process.
- He is financially in a comfortable position (house without mortgage, decent pension - more than enough to live of - and over €300k in saving, which in his own words, he "doesn't really need").

He proposed over xmas a deal and asked me to check if this would work for me (his idea - took me completely by surprise and I have no idea where to start! ... HELP!!!):
- He is proposing that I inherit €20k-€30k every year until roughly half his estate is inherited or until he dies (which is when his will would kick in and sort out the rest!). According to him, his estate is roughly €1m to €1.5m.
- He checked with his German financial/tax advisor - this would be completely tax exempt under German law - so if I was living in Germany and was subject to German taxation, I would receive €20k-€30k a year tax free!. He asked me to investigate how the tax situation is for me as UK resident / tax resident.
- I am financially in a comfortable position in the UK, this money would go in mortgage overpayment or privat school fees for our little one - definitely not in our day-to-day financials!
- If I this would be taxed with the normal 40% tax rate, it would not make an sense to go down this route!

So... my questions:
- Where to get advice on this? The normal pension advisor/FA? IMHO out of his depth on the international element.
- I still hold a German bank account (normal current account) - is it possible to just use this and transfer to the UK as taxed income? Rather not I'd assume...
- There is no time pressure, I rather get it right and wait a year!

Any help/pointers/advise/contacts are highly appreciated!

Cheers
Dan

noh

Your father will be gifting you the money. Gifts are tax free in the UK.

colsten

Your questions seem to be all about taxation, so you need an accountant, or you could go straight to the HMRC to ask about your personal tax liabilities.

I would, however, be surprised if there weren't any rules in Germany similar to the UK inheritance tax rules and/or deprivation of assets.

This seems to be one of the applicable German laws: http://www.gesetze-im-internet.de/erbstg_1974/index.html

IanManc

noh wrote: »

Your father will be gifting you the money. Gifts are tax free in the UK.

That's right. The only time a gift of money received in the UK might be taxed, and that would be inheritance tax not income tax, would be if the donor died within seven years of giving the gift, and the donor's estate was above the tax free allowance, but your father is a German living in Germany so his estate is not subject to UK inheritance tax.

So inheritance tax would never apply, and gifts aren't subject to income tax in the UK.

Looks like you're in the clear as far as the UK is concerned. :beer:

colsten

noh wrote: »

Your father will be gifting you the money. Gifts are tax free in the UK.

This is true but it is equally true that if the gifting person dies within 7 years, the gift(s) are considered part of the estate and IHT may become due. Also, if the gifting person needs care, the Local Authority might not pay if they consider there's a case of Deprivation of Assets. No idea whether similar rules / laws / practices apply in Germany.

colsten

IanManc wrote: »

So inheritance tax would never apply, and gifts aren't subject to income tax in the UK.

Looks like you're in the clear as far as the UK is concerned. :beer:

I can assure you that the German tax authorities will come after you for any tax that may be owed in Germany. They'll do so now, and will continue to do it after Brexit. It would be a tad too easy if you could avoid German tax by simply moving to another country.

IanManc

colsten wrote: »

I can assure you that the German tax authorities will come after you for any tax that may be owed in Germany. They'll do so now, and will continue to do it after Brexit. It would be a tad too easy if you could avoid German tax by simply moving to another country.

I wasn't suggesting that there wouldn't be tax consequences in Germany, that's why I said "Looks like you're in the clear as far as the UK is concerned.".

The OP also said, in his first posting "He checked with his German financial/tax advisor - this would be completely tax exempt under German law - so if I was living in Germany and was subject to German taxation, I would receive €20k-€30k a year tax free!. He asked me to investigate how the tax situation is for me as UK resident / tax resident. ".

And no one is "moving to another country". The father lives in Germany and the OP in the UK.

colsten

It's a bit shortsighted to just consider the UK tax situation, and from all I can tell from the link I posted earlier to the German legislation, there is a good chance that the advice by the father's financial/tax advisor was a bit previous.

keithdc

If you would be using the money to pay school fees, could your father not just pay these direct?

This would cut out the middle man (you!) and avoid potential tax issues.

J_B

We have a house 'abroad'
Some folks there, when they need tax advice, use 'Blevins Franks'
https://www.blevinsfranks.com/

Not sure if they could advise you?

deewee1611

Thanks everyone for the comments! I wasn't aware that this would be classed as a gift!
Anyways, I will take get some professional advice!
Also the idea of him paying the school directly is great, will investigate!

Thanks again!