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Gifts with international elements

When considering making lifetime gifts, with international elements, it is crucial to consider not only the UK tax position, but also the laws of the other jurisdictions and how they interact.

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Published 10 December 2021

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When considering making lifetime gifts, international elements can complicate matters. The international dimension may arise because you have assets in foreign jurisdictions or because you are resident or otherwise subject to tax in another country.  In such circumstances, it is crucial to consider not only the UK tax position, but also the laws of the other jurisdictions and how they interact.

Foreign assets

For a UK resident and domiciled person, the UK tax position on gifts of foreign assets is exactly the same as for UK assets.  Broadly, an outright gift may suffer inheritance tax if you die within seven years of making it, and capital gains tax may be payable.  However, the story does not end there, because there may also be foreign tax implications.

Many countries, unlike the UK, impose a gift tax on lifetime gifts.  Other taxes which may apply are capital gains taxes, stamp duties or equivalent and other transfer taxes.  Such taxes could apply to any type of asset, but you should be especially wary if you plan to give foreign real property (i.e. land and buildings).  Also, bear in mind that, while gifts between spouses are broadly tax-neutral for UK tax purposes, the same is not always true in other countries.

Foreign residents

If you are resident in a foreign country, you will almost certainly be subject to tax there.  If a non-resident (or a dual resident) makes a gift of assets in the UK, then UK tax may also apply.  If the taxes in the respective countries are of a similar type, double tax relief may be available.  However, advice should always be taken to ensure that there are no nasty surprises.

It should be noted that US citizens are always subject to US tax, regardless of where they live, so US tax must always be considered when an American makes a gift.

Gifts into trust

Even when looking purely at UK tax, gifts into trust must be considered carefully, given the risk of triggering an immediate inheritance tax charge if the value transferred is over £325,000 and no reliefs apply.  When other jurisdictions are involved, things only become more complex.

Not only do you need to consider the cross-jurisdictional tax questions described above, but you also need to be aware that trusts are an alien concept in many jurisdictions, and they can impose punitive or unusual taxes on trusts.  For example, it is unlikely to be wise to establish a trust if there are French connections, whether in the form of the assets or the individuals involved.

Non-domiciliaries

While making lifetime gifts with an international dimension can be a minefield, in the right circumstances it can also present opportunities.  People who are neither domiciled nor deemed domiciled in the UK only have an exposure to UK inheritance tax on their UK assets.  Therefore, gifts of their non-UK assets can be very efficient, particularly if they are made into trust, in which case the inheritance tax benefits can be “locked in” for the future benefit of their family.

 

You can read our latest Lifetime Giving article here: UK/US Giving

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Shorter Reads

Gifts with international elements

When considering making lifetime gifts, with international elements, it is crucial to consider not only the UK tax position, but also the laws of the other jurisdictions and how they interact.

Published 10 December 2021

Associated sectors / services

  • International trusts, tax and estate planning
  • Private Wealth
  • Tax & Estate Planning

Authors

When considering making lifetime gifts, international elements can complicate matters. The international dimension may arise because you have assets in foreign jurisdictions or because you are resident or otherwise subject to tax in another country.  In such circumstances, it is crucial to consider not only the UK tax position, but also the laws of the other jurisdictions and how they interact.

Foreign assets

For a UK resident and domiciled person, the UK tax position on gifts of foreign assets is exactly the same as for UK assets.  Broadly, an outright gift may suffer inheritance tax if you die within seven years of making it, and capital gains tax may be payable.  However, the story does not end there, because there may also be foreign tax implications.

Many countries, unlike the UK, impose a gift tax on lifetime gifts.  Other taxes which may apply are capital gains taxes, stamp duties or equivalent and other transfer taxes.  Such taxes could apply to any type of asset, but you should be especially wary if you plan to give foreign real property (i.e. land and buildings).  Also, bear in mind that, while gifts between spouses are broadly tax-neutral for UK tax purposes, the same is not always true in other countries.

Foreign residents

If you are resident in a foreign country, you will almost certainly be subject to tax there.  If a non-resident (or a dual resident) makes a gift of assets in the UK, then UK tax may also apply.  If the taxes in the respective countries are of a similar type, double tax relief may be available.  However, advice should always be taken to ensure that there are no nasty surprises.

It should be noted that US citizens are always subject to US tax, regardless of where they live, so US tax must always be considered when an American makes a gift.

Gifts into trust

Even when looking purely at UK tax, gifts into trust must be considered carefully, given the risk of triggering an immediate inheritance tax charge if the value transferred is over £325,000 and no reliefs apply.  When other jurisdictions are involved, things only become more complex.

Not only do you need to consider the cross-jurisdictional tax questions described above, but you also need to be aware that trusts are an alien concept in many jurisdictions, and they can impose punitive or unusual taxes on trusts.  For example, it is unlikely to be wise to establish a trust if there are French connections, whether in the form of the assets or the individuals involved.

Non-domiciliaries

While making lifetime gifts with an international dimension can be a minefield, in the right circumstances it can also present opportunities.  People who are neither domiciled nor deemed domiciled in the UK only have an exposure to UK inheritance tax on their UK assets.  Therefore, gifts of their non-UK assets can be very efficient, particularly if they are made into trust, in which case the inheritance tax benefits can be “locked in” for the future benefit of their family.

 

You can read our latest Lifetime Giving article here: UK/US Giving

Associated sectors / services

  • International trusts, tax and estate planning
  • Private Wealth
  • Tax & Estate Planning

Authors

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