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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
Satisfied Customers: 4715
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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ABOUT 8 YEARS AGO I LENT A FRIEND £130,000 TO PURCHASE AN APPARTMENT.

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ABOUT 8 YEARS AGO I LENT A FRIEND £130,000 TO PURCHASE AN APPARTMENT. THE LOAN WAS INTEREST FREE SECURED BY A DEMAND NOTE AND A MORTGAGE ON THE PROPERTY. MY FRIENDS CIRCUMSTANCES ARE SUCH THAT THE LIKELIHOOD OF REPAYMENT IS SMALL, FURTHERMORE I DO NOT NEED THE MONEYAND DO NOT RELY ON THE LOAN EVER BEING REPAID. IN THE HOPEFUL EXPECTATION OF SURVIVING FOR AT LEAST 7 MORE YEARS I WOULD LIKE TO FORGIVE THIS LOAN NOW AND KEEP IT OUT OF MY ESTATE. IS THERE ANY TAX CONSEQUENCE FOR ME OR MY FRIEND UPON MY FORGIVING THE LOAN<OTHER THAN IHT IF I DO NOT SURVIVE LONG ENOUGH. THE PROPERTY IS IN THE UK AND ALTHOUGH I AM BRITISH BY BIRTH I HAVE BEEN NON UK DOMICILED FOR 30 YEARS AND HAVE RECENTLY, 4TH APRIL 2013, BECOME NON RESIDENT. MY FRIEND, ALTHOUGH UK RESIDENT AND A UK TAX PAYER IS A NON UK CITIZEN WHO INTENDS AT SOME TIME IN THE FUTURE TO RETURN TO HER HOME IN THE PHILIPPINES.
THANK YOU FOR ANY ADVICE YOU MAY HAVE

Hello, if you have any questions or need further clarification after reading my answer please let me know.

 

Thank you for your question..

 

You say that you have become non resident for UK tax purposes from 4 Apr 2013 and non UK Domiciled for the past 30 years.

.

First of all, conversion of loan into a gift is possible and it is then regarded as a potentially exempt transfer for IHT purposes. The seven year rule applies to potentially exempt transfers.

 

The gift in the hands of the recipient is tax free under UK Tax rules.. she will not pay any tax on that money.

 

As far as tax implications for you are concerned .. your liability to UK inheritance tax will be dependant on your domicile and where your assets are situated.

 

Once you have moved outside the UK and are treated as non resident and non domiciled in the UK for tax purposes, assets held in the UK only would be subject to UK inheritance tax.

 

If you did not have any assets in the UK, then your estate would not have to pay any UK IHT.

 

More information on 'Inheritance Tax when someone living outside the UK dies' is covered here

https://www.gov.uk/inheritance-tax/inheritance-tax-when-someone-living-outside-the-uk-dies

 

 

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