IHT on oversees property

liamster

Hi we bought a Holiday apartment overseas a few years ago planning to use it over the summer when we retire. when we both die my son will get the apartment. What is the situation regarding IHT in the UK and the property, leave it as it is or get it transferred to him now.

DRS1

Are you still planning to use it?

DRS1

And are you domiciled in a country in the UK?

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6679425/iht-on-oversees-property

Is your estate large enough that IHT is a concern?

And still likely to be a concern at death?

If you gift the apartment to your son now, will you still want to use the apartment for stays when you retire?

Does your son already own his own property? If not, FTB status will be sacrificed.

Does your son claim any means tested benefits?

Does your son want the apartment or will he sell it and use the money for matters he considers a higher priority?

Is there any possibility of a relationship termination between your son and partner?

Do you have sufficient means to fund any care needs that may arise?

silvercar

We’ve looked into this.

Assuming you are domiciled and resident in the UK.

First thing to consider is any inheritance tax due on the property to the foreign tax authority - though not all countries have IHT. Some may allow you to pass the property on to your offspring and its purchase value tags along, so tax is paid when eventually sold by your offspring based on your purchase price, rather than the value at your death. Other countries may look at the difference in value at death so crystallise the gain at that point.

Second thing is whether there is a double tax agreement and how that works. So with an agreement between the countries in place, you may find any tax due overseas can be used to reduce the burden in the UK.

There is also the headache of valuing everything in GBP, so what may not be a gain or subject to tax overseas could be a gain in the UK due to exchange rates being different at time of purchase to time of sale (if you sell up while alive and have CGT to consider).

As far as gifting it to your offspring now, if you use it free of charge after transferring ownership, it still forms part of your estate as a ‘gift with reservation’. So you would either need to record when you stopped using it to start the clock (for surviving 7 years to be out of your estate or 4 years for taper relief) or you need to make market rate rental payments to your son for when you use it. The latter I suppose releases more money from your estate if you have the funds to do so.

Also agree with all grumpy’s points.

In the words of my offspring, ‘it would have been a lot less hassle if you’d have bought somewhere in the Cotswolds!’

Keep_pedalling

Which country? Do you have wills in place for both your UK and overseas assets? Other counties have very different inheritance rules than the UK.

Assuming you are both domiciled in the UK, the apartment forms part of your estate so could be subject to IHT. If you transfer the property to him now then it would only drop out of your estate after 7 years if you paid him full rent for your exclusive use, or, if you currently rent it out, he receives the rental payments otherwise it will be deemed a gift with reservation of benefit so will not drop out of your estate.

There are other potential issues which could come in to play if you gift it now. If he is not already a home owner then it would lose home his first time buyer status, and he would pay additional tax when he purchased his first home as it will be classed as a second home. You could also loose the property in the event that your son goes bankrupt, divorces or pre deceases you.

UKTaxHelper

Gifting it to him now would count as a disposal for CGT at market value, even though no money changes hands. There's no private residence relief on a holiday place, so if it has risen since you bought it you could be facing a UK CGT bill straight away with nothing coming in to cover it. Worth pricing that up before you decide, it can change the answer on its own.

poseidon1

https://forums.moneysavingexpert.com/discussion/6679425/iht-on-oversees-property

Some questions:

• Where is the property located?
• Has it increased in value since original purchase?
• Presumably you will continue to use the flat, but not pay a market rent to your son for doing so?

Some taxes to think about:

1. CGT - if property has increased in value there will be a UK taxable gain on the increase ( if any). Depending on where the property is located there may also be foreign CGT on the gain - see below the position in Spain as an example -

https://easytospain.com/blogs/gifting-property-to-your-children-in-spain

2. IHT - if you don't pay your son a market rental to use the flat ( with income tax payable thereon), the gift will be ineffective for IHT and remain part of your taxable estate for IHT purposes. However, unless your total estate exceeds £1 million ( including the overseas property), IHT is only a theoretical issue.