I would like to contribute R1 million to the purchase of a house in the UK for my daughter and son-in-law:
- What is the best way to go about this?
- Am I able to have part ownership of the house, which may, as a secondary consideration, avoid donation tax?
Thanks for sending your question through. To answer it, we will begin by discussing how getting the money to your daughter will work. As a South African, you can use your Single Discretionary Allowance (SDA) to move up to R1 million offshore per tax year. Your SDA does not require any tax clearance from the South African Revenue Service (Sars), although it is important to be aware of certain things which can use up your annual SDA, for example:
- Purchasing offshore goods, for instance from Amazon and Alibaba;
- Donating gifts offshore; and
- Converting rands to offshore currency for an overseas holiday.
Therefore, provided that your bank can facilitate the transfer and you are sure that you have not used any of your annual SDA, you should be able to do a banking transfer into your daughter’s offshore bank account. There are service providers that can help to facilitate this process if your bank is not able to.
In answering your second question, please note that there are no rules or regulations prohibiting non-UK residents from owning property in the United Kingdom. As such, you are able to own a portion of the property equal to your R1 million contribution. While this would solve the donations tax issue, it is important to remember that if you own an asset such as a property in the United Kingdom, you may need to draft a foreign will to deal with that asset in the event of your passing.
Another important consideration would be the liquidity of your estate in the event of your death. Assuming that you would bequeath your share of the property to your daughter, should your estate not have sufficient liquidity, your daughter would need to pay into your estate in order to prevent the executors from attracting executor fees and potentially estate duty.
An alternative option should you not wish to own a share in the property would be to set up a loan account with your daughter. After sending the money to her, you can draw up a simple loan agreement at a 0% interest rate, while amending your will to ensure that the loan account is left to her in the event of your death. However, bear in mind that loan account would be an asset in your estate and will therefore attract executor fees and potentially estate duty. Each year, you can write off R100 000 of the loan using your donations allowance, thereby effectively reducing the potential taxes in the event of your death.