Clients from the UK with assets abroad may be surprised to learn that planning recommended by advisers in the country where they have an asset has caused taxes in the UK. This happens all too often, even with planning which is completely standard in the local country.
This article focuses on the arrangements which are most often prepared without taking UK advice, due to an expectation that they would have no tax consequences here. These are mainly found in France, Italy, Germany, Spain and South and Central America.
The “most wanted” list of arrangements to check for in these countries are:
- usufructs – these allow a person to give away an asset whilst retaining the right to occupy and use it;
- gifts in sequence – allow a person to gift an asset and control who receives it on the first recipient’s death; and
- administration agreements – which allow a person to entrust a third party with the management of an asset.
Names to look out for include:
|Usufruct||Usufruit, donation partage, usufructo, usufrutto, Nießbrauch|
|Gifts in sequence||donation graduelle, donation résiduelle, sustitución fideicomisaria, sostituzione fedecommissaria|
|Administration agreements||Fiducie, mandato fiduciario, fiducia, vincolo di destinazione, Treuhand|
John purchases an apartment in Germany for skiing trips with his children each winter, letting it out for the rest of the year. His notary points out that German inheritance tax applies to the property and recommends a usufruct, saving tax when his children receive the property on his death.
During a routine check into John’s tax return, HMRC discover the usufruct and raise an assessment for a 20% inheritance tax charge, interest and penalties. Without advice, valid arguments as to the amount of tax and penalties are not put forward.
What should I do if I have such an arrangement?
Seek UK tax advice. We can analyse the documents and highlight any issues. There may be a wide range of potential taxes applicable, but considered planning can mitigate these where appropriate.