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was talking to a mate in the pub yesterday who told me about a family arrangement hes got at present. i couldnt see any problem with it and neither can he but it still doesnt sound quite right so i said id ask on here, see if its all above board.
his brother has a successful business abroad, bank account over there and a few years ago moved back to the uk. i believe he pays 50% tax on money he spends over here. my pub mate has an ok job and gets taxed by his company, so PAYE but not at that level.
his brother has offered to spread the family love a bit by giving him a bit of wedge each month, so in effect paying him out of his foreign bank acc. ok, that all sounds lovely, families helping each other out, everybody happy.
however, me just playing devils advocate says whats to stop him handing over £10,000 or £100,000 say and then saying 'please pay for me to have a new extension on my house, buy me a new car etc so i dont have to pay tax on it'. it seems open to possible fraud, so id have guessed he wouldnt be allowed to do it, he'd still have to pay tax on any handouts. and would matey have to declare hes receiving handouts if that money pushed him up to the next tax level even tho its not earnings?
it just seems complicated to my financially naive mind. maybe it isnt complicated at all tho and its all ok to do *shrugs
what d'ya reckon?
Just guessing. The brother may think he has to pay UK tax on money he earned abroad - which the UK tax authorities won't know about yet - so he's giving some to his brother, because you don't pay tax on gifts. I've no idea whether that's legal or not, or whether he would have to pay tax in the first place; links below may help.
https://www.gov.uk/tax-foreign-income
The regular payments will get flagged by somebody there.
Why does he pay 50% tax on money he spends? I'm no tax accountant but that doesn't sound right.
Yeah I'm puzzled on the 50% tax thing as most countries have double taxation agreements with the UK. Subject to him paying whatever tax is due, he can give the money away as he pleases though. The recipient has no liability (there is a possibility of inheritance tax if the donor dies within 7 years though).
Why does he pay 50% tax on money he spends? I’m no tax accountant but that doesn’t sound right.
i believe its cos his (foreign) business pays him above the 50% tax level into the uk? so same as earning that amount from a uk business. that right?
Sounds like he might be a remittance basis taxpayer?
Sounds like he might be a remittance basis taxpayer?
never heard of it but a quick google suggests that may be the case.
looks like its maybe more complicated than we thought. you think he may get flagged up on these regular payments tho and get hit hit with a retrospective tax bill? would my mate get billed to pay part of the gift back in tax, or would it be his bro?
i should maybe have just not said anything to him, far less complicated 😀
If person one is receiving money from abroad then distributing it at regular intervals to the same people for sure it is going to look to Hmrc like they are being paid but not paying any taxes.
He could pay builders/bills probably... once the money is in country legally he can spend it how he chooses.