How can I invest for my granddaughter in Japan?

I have three grandchildren, two in the UK and one born 18 months ago to my son’s wife in Japan. They are buying a house in Tokyo and likely to stay in Japan for the foreseeable future. I have been helping finance two junior Isas for my British grandchildren. I would like to do something similar for my granddaughter in Japan but am at a loss, as junior Isas are solely for UK residents. My son is a British national. Any suggestions?

Jeannie Boyle, director and chartered financial planner at EQ Investors, says a simple way would be to send the money to your son in Japan to invest.

When the Japanese government wanted to encourage long-term investing to help their ageing population build financial resilience, they used the UK’s Individual Savings Accounts (Isas) as a model. The accounts are so similar they are even called Nisas (Nippon Individual Savings Accounts).

Japanese residents are able to make limited annual contributions with the profits being realised free of the usual taxes. Just like in the UK, there is also a Junior Nisa for minors. However, if your son would like to invest in one of these he will need to deposit the money in the next couple of years. The accounts are due to be scrapped by the end of 2023 because take-up has been low. After that no further payments can be made into the accounts but those already open will continue to benefit from tax exemptions.

Jeannie Boyle, director at EQ Investors

Up to 800,000 yen (about £5,200) can be invested each year. From 2024, tax-free withdrawals will be permitted from Junior Nisa accounts. This makes them more flexible than the UK account which does not allow any withdrawals before the child reaches age 18. This could be a helpful feature if your son and family do move back to the UK.

Keeping the money invested in the child’s home country could make life easier for everyone in the long term and reduces their exposure to currency risk.

The alternative would be to keep the money in the UK to control the account yourself. Keeping the money in your own name in a general investment account is not as tax-efficient but it gives you a high level of control over the money.

You could be liable for tax on dividends if these are in excess of your £2,000 annual allowance and also any interest payments over your personal savings allowance (£1,000 for basic rate taxpayers, £500 for a higher-rate taxpayer or £0 for additional rate payers). You could also pay capital gains tax on any profits above your annual exemption. If you are not using these allowances, then this could be a good alternative.

Keeping the money in your own name means it will stay inside your estate for inheritance tax purposes and the seven year clock wouldn’t start until you give the money to your granddaughter. You could create a trust for your granddaughter, but this is perhaps a level of complexity that isn’t required in this situation.

I’m cutting ties with the UK. How can I best sell my home?

I have been living abroad for three years while my UK home has been earning rental income. I have decided to cut my ties with the UK and sell my home. It is not clear if this will generate any tax liability.

I could return to the UK to resume residence and live in the property for 6-12 months, or I could sell from abroad. I have owned the property for 14 years and while there is a small mortgage remaining, the rise in value will comfortably settle the outstanding balance and deliver a positive return. What is the most tax-efficient means of disposing of my UK home?

Hannah Wailoo, partner at Withers

Hannah Wailoo, partner in the private client and tax team at Withers, says as the property has not been used solely as your main home, some of the profit you make may be subject to capital gains tax (CGT), even if you sell from abroad. There are allowances and reliefs that can reduce the tax, with different rules for landlords and non-residents, so you will need to assess the different periods when you lived in and let the property to see which rules apply.

You will not pay CGT on any gains from the period that the property was your main home, plus the last nine months of ownership. For the remaining period, you only pay tax on gains above the annual exempt amount, which is £12,300 for 2020-21. Check how much of your allowance is available if you have sold other assets this year already. You can deduct buying and selling costs such as stamp duty land tax (in England and Wales), conveyancing and estate agent costs, and certain types of renovation work costs.

If you have sold other assets last year or intend to in this tax year, check for any losses which you may be able to offset against any gain. This is limited to UK real estate losses if you remain abroad. If you sell from abroad also take local advice to check if there are any foreign tax charges or local reporting requirements.

You do have flexibility on how you attribute any gain between the two periods. You could apportion the gain from the whole period of your ownership against the period that you did not live there. Alternatively, you could revalue the property from the date you moved out and work out any gain arising from that time. HM Revenue & Customs will let you use the method that results in the lower amount of tax.

CGT is 18 per cent or 28 per cent depending on your UK income tax rate and is the same for both UK and non-residents.

From what you say, a large proportion covering when you lived there should be tax free. If there is still a taxable amount once allowances have been applied and losses offset, moving back into the property could reduce it to zero if you can show that your absence was for three years or less or that your time abroad was work related. Occupying it jointly with your tenant may also qualify you for a landlord letting relief of up to £40,000.

If there is a substantial gain, moving back to the property may seem attractive as it offers a potential tax-free sale, but don’t forget to take into account the costs of moving and the loss of income from your tenant. Also take advice on whether selling as an investment property with your tenants in place may maximise your sale value. Moving back could also have wider UK and foreign tax implications, so make sure those are also checked before deciding on a relocation purely for CGT purposes.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Our next question

My wife and I bought shares in Grand Metropolitan, now Diageo, for £1,000 in 1973. We have had the dividends reinvested since that date. The shares are now valued at £137,000. If we decide to sell them will CGT be applied and how do we calculate it? Second, can we at this late stage opt to put the shares in a stocks and shares Isa?

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to [email protected].

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