I became a British Citizen in 1987, after five or six years of employment and permanent residence, on a work permit in the UK. In 1985, I bought and owned my only flat in London, and lived there as my principal private residence until 1995. In 1995, I left the UK and became non-UK resident. Before leaving the UK, I gave my flat to my British sister as a gift (without, however, officially transferring and registering the legal title to her). Since then, my sister has been living there as the sole beneficial owner. I now intend to legally transfer the title to my sister. The question I have is whether there are any tax implications? As the property was my principal private residence until I gifted it to her, do I understand the rules correctly that there will not be any capital gains tax upon such transfer now? Do I also understand correctly that there is no transfer tax as it is a gift and no money will be exchanged when I now officially transfer the title? Also, as 21 years have already passed since the date of the effective gift, do I understand correctly that the inheritance tax (IHT) ‘seven-year rule’ will not apply from now, as longer than seven years has already expired? Finally, what steps should I take and what documents will I need to present the described facts, and to whom, to ensure I will not become liable for tax?
Arthur Weller replies.
From what you have written, it seems that you transferred the beneficial ownership to your sister in 1995, without transferring the legal ownership. I am hoping that you have written documentation to support this. If so, for tax purposes, your sister has owned the property since 1995. See www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg70230. If you now transfer the legal ownership to her that will not trigger any tax - see www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg10720. As you have correctly written, since you effectively transferred in 1995, the IHT ‘seven-year rule’ will not affect you.
This question was first printed in Tax Insider in September 2017.