26 April 2016, 2:19 PM | The Telegraph
Question: I am British, resident in Spain. I am thinking, in order to reduce taxes payable upon my death, of transferring 500,000 euros to my sister’s UK bank account (she is UK resident). As a gift, this would not be taxable if I live seven years. Since I need the funds to live on, my sister would then make me a “loan” on which I would, of course, pay interest. Advantages are I believe obvious. However, I don’t know if such a simple scheme is legal?
Answer: Howard Bilton, chairman, The Sovereign Group.
To fully understand the tax consequences of the gift you are proposing to make it would be necessary to establish your domicile. If you have not been in Spain very long or do not intend to remain there indefinitely you will have retained your UK domicile. Assuming that is the case, then the arrangements you contemplate, whereby you make a gift and monies are loaned back to you, are caught squarely by section 103 of the Finance Act 1986. The effect of this is that the money would be assumed to remain within your estate.
You might be able to achieve a better result if the gift is made without condition but then your sister provides non cash benefits to you over time. For the principal amount to be considered outside your estate it would be important that the gift back to you is not a condition of the gift from you to her i.e. the one gift is not conditional upon the other. That might be difficult to prove if you are required to do so. Also any gift made back to you, such as a share in a property your sister purchased with the funds you gifted to her, will form part of your taxable estate on death.
I think the better option would be for you to establish a Family Investment Company (FIC). Under this arrangement, monies are transferred to a company.
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