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I am a UK resident for tax purposes since 2012. I plan to…

I am a UK resident...
I am a UK resident for tax purposes since 2012. I plan to transfer to my 25 year old son who is a UK tax resident, this year a plot of land in my country of birth which i bought 23 years for the equivalent of 25k GB pounds and it is now worth about 100k GBP.
My country of birth is a member of the EU and have double tax treaty with the UK. The Capital Gains tax rate on land is 20% in my country of birth, but transfers from parents to children are exempt from CGT. When my son sells the land (he intends to sell it when the prices improve probably in few years), he will be liable for CGT at 20% in my country of birth where the land is.Would i be liable to CGT in the UK on the transfer of the land to my son?
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Answered in 9 minutes by:
11/13/2017
taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
Satisfied Customers: 5,208
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.
Many thanks

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Thank you for your question.

The short answer to your question is YES. If you are UK resident for tax purposes, you are taxed on gains made worldwide whether there is taxation suffered on that gain abroad or not. In the event you were to suffer CGT in the country of sale, then you would be able to cliam foreign tax credit relief under double taxtion agreement between the UK and that country.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

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Customer reply replied 9 months ago
When my son sells the plot of land in few years, he will pay in the country of sale 20% CGT on the difference between the original price i paid for the land 23 years ago and the price at which he will sell it. Therefore, there will be double taxation if i pay CGT now in UK.Also, as i have been a UK tax resident for only 5 years, can i claim non domiciled status to avoid CGT on the transfer of my land in a third country?

Thank you for your reply.

The transfer of land would be deemed at market value at the time of transfer. This market value is the new cost base for your son. Your gain is the difference between the market value and the cost price.

If you were to avail remittance basis charge, then being resident in the UK for only 5 years, there would be no CGT payable on transfer of land to son as no funds would be remitted to the UK.

More information on this is covered on page 61 of RDR1 here

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/528018/RDR1-residence-domicile-remittance.pdf

I hope this is helpful and answers your question.

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Customer reply replied 9 months ago
What you say in the first sentence of your above reply is logical. But in the country where the land is located the capital gain arise only at the point of sale and is the difference between the original cost i.e. what i paid for the land and the price at which my son will sell it.

Thank you for your reply.

In this case, you should seek valuation of land at the time of transfer and use this figure as the cost base for UK CGT purposes when your son eventually sells it.

I hope this is helpful and answers your question.

Ask Your Own UK Tax Question

Hi there

Just checking to see if you need more clarification/information or have I amswered your question.

Many thanks

Ask Your Own UK Tax Question
Customer reply replied 9 months ago
Therefore, on the transfer of the land to my son I will pay UK CGT of GBP: 100k value at transfer minus 25k original cost=75k gain @20% = 15k. There will be NO CGT in country of land because there is no CGT there on transfers from parents to children.When my son sells the land later on, say at 110k he will be CGT in the country where the land is located based on their current laws: 110k minus original cost of 25k = 85k gain @20% =17k. Due to Double Taxation treaty, there will be no CGT in the UK as the CGT rate is the same.
Therefore, i will pay 15k CGT in the UK and my son will pay a further 17k in the country of the land. Total 15+17= 32k CGT on total gain of 85k which amounts to 38% CGT whereas the CGT rate in both countries is 20%.
Is there anything in the Double Tax treaty that will enable us to reduce the CGT to 20%?

Thank you for your reply.

As you have not been a UK resident for more than 7 years and provided no funds from sale of land are remitted to the UK, you could opt for remittance basis charge and therefore no CGT would be payable on your sale. Otherwise, CGT rate on the gain would be 18%, 28% or a combination of both depending on your total taxable income including the gain. You would be entitled to gains annual allowance of £11,000 before tax is calculated. As you would not have paid any CGT in the country were the land is, you would only pay CGT in UK if any.

When you son sells the land at a later date, his UK CGT would be based on selling price less transfer value. He would also be able to claim gains annual allowance and the likelihood is there would be no CGT payable in the UK. He could claim foreign tax credit relief against UK CGT for tax suffered in the country of sale

I hope this is helpful.

taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
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Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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