Double tax treaty - Tax advice
Aug 2nd 2020, 8:13 am
#1
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Joined: Aug 2020
Location: Budapest
Posts: 2
Double tax treaty - Tax advice
I have recently bought a flat in Budapest and plan to spend part of the year here
My income from property rentals remains in the UK and I always intend to have UK base and don’t wish to complicate things by being taxed in Hungary
I am interested to know should I earn in Hungary :-
- bank interest and
- capital gains eg
should I buy and sell a plot of land for example
do I pay tax in Hungary ( using the Hu tax rules ) or do I declare everything earned in Hu on my UK tax return and just pay tax in UK in accordance with the UK tax limits ?
I know the idea of a tax treaty is not to pay tax twice but what about a situation where the rules are significantly different ?
eg If I buy a plot of land in Hungary in my 7 year old grandsons name and sell this 12 months later making a profit of £15,000
How would the tax work ?
Do the Hu tax office send me a tax bill for 15% of the gain ? £2250
Would a child be liable for tax in Hu ?
What about the UK ?
Once again would the child be tax free or the parent liable ?
assuming current CGT tax free limits of £12,300 rest at 18% so £486 tax to pay in UK
Would they tax difference between the two countries have to be paid and to whom or do I benefit from being a UK tax payer and only pay £486 ?
Sorry lots of questions but it’s bad enough dealing with 1 tax man let alone 2 !
My income from property rentals remains in the UK and I always intend to have UK base and don’t wish to complicate things by being taxed in Hungary
I am interested to know should I earn in Hungary :-
- bank interest and
- capital gains eg
should I buy and sell a plot of land for example
do I pay tax in Hungary ( using the Hu tax rules ) or do I declare everything earned in Hu on my UK tax return and just pay tax in UK in accordance with the UK tax limits ?
I know the idea of a tax treaty is not to pay tax twice but what about a situation where the rules are significantly different ?
eg If I buy a plot of land in Hungary in my 7 year old grandsons name and sell this 12 months later making a profit of £15,000
How would the tax work ?
Do the Hu tax office send me a tax bill for 15% of the gain ? £2250
Would a child be liable for tax in Hu ?
What about the UK ?
Once again would the child be tax free or the parent liable ?
assuming current CGT tax free limits of £12,300 rest at 18% so £486 tax to pay in UK
Would they tax difference between the two countries have to be paid and to whom or do I benefit from being a UK tax payer and only pay £486 ?
Sorry lots of questions but it’s bad enough dealing with 1 tax man let alone 2 !
Aug 2nd 2020, 1:29 pm
#2
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Joined: Nov 2012
Posts: 2,096
Re: Double tax treaty - Tax advice
What matters is where you are resident.
Income from property is taxed in the country of that propertys location. CGT on UK property is payable to UK HMRC even if you are resident abroad.
If you are a UK resident then CGT is payable on property abroad.
If you recently bought a flat in Budapest then you will know that there is 8% 'stamp duty' payable. If you sell the flat within 5 years then any profit will be added to your income for that year and taxed. After 5 years there is no tax to pay on the sale of property.
If you buy a plot of land in Hungary in your grandsons name it belongs to him and you can't sell it because it isn't yours. His guardian can sell it and do what ever they want to do with the proceeds for the benefit of the grandson. The grandson will be liable for any tax due on the transaction, both 'stamp duty' and any Hungarian CGT. (And will need a Hungarian tax number)
In the UK things get messy because there are different ways of buying property for children, straight gift or various trust options all have their benefits and liabilities, but the property will still (more or less depending upon the trust) belong to the child so you won't be able to sell it a year later and take the money back. Children under the age of 18 can't own property in the UK so a trust has to be formed and it can get messy.
Whilst talking about a 'plot of land' there are restrictions in Hungary that limits what land foreigners can buy.
Health warning - I am not a tax consultant and the above is my understanding from dealing with such issues for myself.
It would be best to get professional advice for each of the scenarios you want to test out from a professional versed in the laws of the country concerned.
Income from property is taxed in the country of that propertys location. CGT on UK property is payable to UK HMRC even if you are resident abroad.
If you are a UK resident then CGT is payable on property abroad.
If you recently bought a flat in Budapest then you will know that there is 8% 'stamp duty' payable. If you sell the flat within 5 years then any profit will be added to your income for that year and taxed. After 5 years there is no tax to pay on the sale of property.
If you buy a plot of land in Hungary in your grandsons name it belongs to him and you can't sell it because it isn't yours. His guardian can sell it and do what ever they want to do with the proceeds for the benefit of the grandson. The grandson will be liable for any tax due on the transaction, both 'stamp duty' and any Hungarian CGT. (And will need a Hungarian tax number)
In the UK things get messy because there are different ways of buying property for children, straight gift or various trust options all have their benefits and liabilities, but the property will still (more or less depending upon the trust) belong to the child so you won't be able to sell it a year later and take the money back. Children under the age of 18 can't own property in the UK so a trust has to be formed and it can get messy.
Whilst talking about a 'plot of land' there are restrictions in Hungary that limits what land foreigners can buy.
Health warning - I am not a tax consultant and the above is my understanding from dealing with such issues for myself.
It would be best to get professional advice for each of the scenarios you want to test out from a professional versed in the laws of the country concerned.
Aug 3rd 2020, 5:15 am
#3
BE Forum Addict
Joined: Dec 2009
Posts: 2,774
Re: Double tax treaty - Tax advice
If the land you plan to purchase is in your grandsons name are you planning to use it yourself, build on it, or whatever? If it's your grandsons land won't you need permission from his parents to do anything to the land? I know it's not nice to mention but if anything happens to your grandson, I.e. accident, death, who will inherit the land? It won't revert back to you is my understanding of intestacy and will go to the parents.
I think you need both a tax specialist and financial advisor who has experience of both countries tax and financial investments. Bottom line is you are not going to be able to avoid paying tax, you will have to pay it in one country or the other. For your own sake and peace of mind keep things simple. The more complicated you make it, I.e. to avoid paying tax or the lowest possible, the taxman in either country will dig deeper and deeper dragging on the process in settling your tax debts. I won't be surprised if you are asked to pay a higher sum than you're expecting with the taxman promising a refund if you had paid too much. You won't get that immediately.
PS - I am not an accountant or financial advisor. Only finance qualifications I have are M.A.A.T (Member of Association of Accounting Technicians).
I think you need both a tax specialist and financial advisor who has experience of both countries tax and financial investments. Bottom line is you are not going to be able to avoid paying tax, you will have to pay it in one country or the other. For your own sake and peace of mind keep things simple. The more complicated you make it, I.e. to avoid paying tax or the lowest possible, the taxman in either country will dig deeper and deeper dragging on the process in settling your tax debts. I won't be surprised if you are asked to pay a higher sum than you're expecting with the taxman promising a refund if you had paid too much. You won't get that immediately.
PS - I am not an accountant or financial advisor. Only finance qualifications I have are M.A.A.T (Member of Association of Accounting Technicians).
Last edited by FenTiger; Aug 3rd 2020 at 5:19 am.
Aug 3rd 2020, 6:43 am
#4
Just Joined
Thread Starter
Joined: Aug 2020
Location: Budapest
Posts: 2
Re: Double tax treaty - Tax advice
What matters is where you are resident.
Income from property is taxed in the country of that propertys location. CGT on UK property is payable to UK HMRC even if you are resident abroad.
If you are a UK resident then CGT is payable on property abroad.
If you recently bought a flat in Budapest then you will know that there is 8% 'stamp duty' payable. If you sell the flat within 5 years then any profit will be added to your income for that year and taxed. After 5 years there is no tax to pay on the sale of property.
If you buy a plot of land in Hungary in your grandsons name it belongs to him and you can't sell it because it isn't yours. His guardian can sell it and do what ever they want to do with the proceeds for the benefit of the grandson. The grandson will be liable for any tax due on the transaction, both 'stamp duty' and any Hungarian CGT. (And will need a Hungarian tax number)
In the UK things get messy because there are different ways of buying property for children, straight gift or various trust options all have their benefits and liabilities, but the property will still (more or less depending upon the trust) belong to the child so you won't be able to sell it a year later and take the money back. Children under the age of 18 can't own property in the UK so a trust has to be formed and it can get messy.
Whilst talking about a 'plot of land' there are restrictions in Hungary that limits what land foreigners can buy.
Health warning - I am not a tax consultant and the above is my understanding from dealing with such issues for myself.
It would be best to get professional advice for each of the scenarios you want to test out from a professional versed in the laws of the country concerned.
Income from property is taxed in the country of that propertys location. CGT on UK property is payable to UK HMRC even if you are resident abroad.
If you are a UK resident then CGT is payable on property abroad.
If you recently bought a flat in Budapest then you will know that there is 8% 'stamp duty' payable. If you sell the flat within 5 years then any profit will be added to your income for that year and taxed. After 5 years there is no tax to pay on the sale of property.
If you buy a plot of land in Hungary in your grandsons name it belongs to him and you can't sell it because it isn't yours. His guardian can sell it and do what ever they want to do with the proceeds for the benefit of the grandson. The grandson will be liable for any tax due on the transaction, both 'stamp duty' and any Hungarian CGT. (And will need a Hungarian tax number)
In the UK things get messy because there are different ways of buying property for children, straight gift or various trust options all have their benefits and liabilities, but the property will still (more or less depending upon the trust) belong to the child so you won't be able to sell it a year later and take the money back. Children under the age of 18 can't own property in the UK so a trust has to be formed and it can get messy.
Whilst talking about a 'plot of land' there are restrictions in Hungary that limits what land foreigners can buy.
Health warning - I am not a tax consultant and the above is my understanding from dealing with such issues for myself.
It would be best to get professional advice for each of the scenarios you want to test out from a professional versed in the laws of the country concerned.
much appreciated
