Deed of gift: Bond Transfer and Income Tax Query

I am writing to seek clarification regarding the income tax implications of a bond transfer through a deed of gift. I would greatly appreciate your guidance on the matter. I am currently the legal holder of a bond, which generates income that is paid directly into my account. I am planning to transfer the ownership of this bond to my mother through a deed of gift. However, even after the completion of the deed of gift, the bond will continue to be held under my name, and the income generated by the bond will still be paid into my account but the bond income will only be used by my mother. In light of this situation, I have concerns about my income tax obligations. Specifically, I would like to understand whether I am still responsible for reporting and paying income tax on the income generated by the bond, even though it will be held under my name but intended for the benefit of my mother.

Hi,

Income tax would be chargeable on the individual who receives (or has the right to receive) any income arising from a bond. So, on the basis of the information provided, your mother will in future be responsible for reporting any income arising from the bond.

Thank you.

Thank you for your feedback. I would like to provide additional information regarding my question. I am a UK tax resident and therefore obligated to report my taxes to HMRC. However, my mother does not live in the UK, is not a UK tax resident, and has never visited the UK as she is from Asia. The bond in question is currently held outside of the UK and is being kept in Hong Kong by a Hong Kong broker. Based on these circumstances, it appears that upon the completion of the deed of gift, I am not required to report any income related to this bond to HMRC even the bond is still kept under my account. Similarly, my mother is not obligated to report this income to HMRC since she is not a UK tax resident, and the bond income does not originate from the UK. Is this understanding correct?

Hi
The charge to income tax would be on the beneficial owner of the income arising from the overseas bond.
The beneficial owner may be different to the legal owner.
If the beneficial ownership of the income has been transferred from the daughter to the mother the daughter would not be chargeable to UK income tax on income arising from the overseas bond after the date of the deed.
If the mother is non-resident the mother would not be chargeable to UK tax on any income arising from the overseas bond.
There is further information on legal / beneficial ownership and their separation at TSEM9100 and TSEM9300.
There is a table showing the scope of liability to UK income tax on investment income at RDRM10440.

Dear HMRC, I am writing to follow up on the this thread and set of questions that I raised approximately five months ago. Unfortunately, I encountered issues with logging in to that account, which prompted me to create a new account for the purpose of continuing the discussion. To provide some context, I have unconditionally transferred my bonds to my mother, and as a result, I will no longer benefit from these bonds, even though they are still held in my account name. After reviewing the HMRC guidelines, I have two specific questions: 1. Will the bonds, which are still held in my account name, trigger the "settlements legislation" that would render me liable for tax payment in the UK? 2. Do I need to register my deed of gift with the HMRC or any other relevant authority to demonstrate the effectiveness of the transfer? I would greatly appreciate your kind assistance in addressing these queries. Thank you for your attention to this matter. Yours sincerely, VP

Hi,

Gifting the bonds to your mother, may mean that you have a capital gains liability arising from their disposal. You would need to obtain their market value at the time of gifting them to your mother and deducting your allowable costs (eg. acquisition costs, brokers fees for acquistion and disposal). This gain can be further reduced by deducting the annual exempt allowance.  

Any remaining gain is subject to tax and should either be declared using the capital gains realtime transaction service below or in a self assessment tax return.  

Report and pay your Capital Gains Tax

Your mother would be liable to declare the dividneds arising from these share, as she is now their benficial owner.

You could write to belowadvising the shares belong to your mother, who should declare them to HMRC.

Thank you.

Dear HMRC, I think you didnt response my above question. I am aware of the obligations to pay the CGT at the time of gifting. Based on my above background, my question is upon the completion of deed of gift, the bond still keeps at my brokerage account and I unconditionally transferred all rights and benefits to my mother based on the deed of gift and my mother can instruct me to get back any money related to the bond from my brokerage account. Since this bond as a gift still kept at my brokerage account, so I want to know whether it will trigger "settlements legislation" (https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4015) that would render me liable for tax payment in the UK?

Hi,

The legislation you refer to is in relation to trusts and from the information provided, you have not actually set up a trust. You can refer to further guidance here:

HS270 Trusts and settlements — income treated as the settlor's (2023)

Thank you.