The Injustice of the New Thai Inheritance & Gift Taxes

[AyG]

The new inheritance tax allows a surviving spouse to inherit tax free.

Gay people aren't allowed to marry, so anything I leave to my partner will be subject to personal income tax. The top rate is 35%, which kicks in at a very modest 4 million Baht.

Straight couples who aren't legally married will be in the same situation (though at least they have the option to marry).

My partner (assuming I predecease him) doesn't have any children to whom he could leave the money tax free (assuming the estate is less than 50 million Baht), so it will be taxed again as personal income when he leaves it to his nieces and nephews. The taxman could potentially take more than half of my estate.

This seems to me incredibly unjust.

Does anyone have any suggestions on how to circumvent this tax in such situations?

[gk10002000]

give your partner a lot of the money now. You trust your partner right? Does Thailand have a gift tax? In America I think $12,000 a year can be given to anybody and they won't have to pay taxes on it.

[wordchild]

keep/move your assets outside Thailand eg in Singapore, add your partner as a joint account holder for any bank accounts, shareholdings etc. its actually pretty easy to avoid this tax for a foreigner in Thailand.

[fletchsmile]

A lot of the techniques to employ will be pretty similar to other people. Just that your exempt amount or allowances are effectively zero. You'll have similar issues with UK IHT no doubt, although at least you'll have the GBP 325k nil band - just no spouses allowance. So you'll need to bear in mind both.

There'll be a whole range of options, but some thoughts that spring to mind:

I guess we still have to wait for details, but assuming that Thai IHT does go thru - no guarantees - one advantage you have is that Thai IHT is based on registered assets in Thailand. Two key words being "registered" and in "Thailand". So holding assets outside Thailand and use of non-registered assets, eg gold, cars, Singapore would be a reasonable place to park assets.

Also putting things in joint names could be a decent idea.

I'd recommend you get wills written for different jurisdictions. For me that is one for each of UK, Singapore, and Thailand. For my wife one for Singapore and one for Thailand. That will make accessing funds easier.

There's also the question of how well they would be enforced. I wonder how they'd cope with your partner going online for example and just transferring money from a joint to a single name account. i.e clear all the joint asset out, then single names under the threshold.

For Singapore, all our assets are more or less in joint names - one party can transact, doesn't need both. Joint names automatically halves the liability. This works for UK IHT too.

Not sure if the IHT rules in Thailand will be gross assets or net. If net you may the have the option of mortgaging or taking loans out on properties if you restructure and one of you is earning. i.e property worth 10mio. Take out a mortgage for 5mio, shift the asset offshore and you now have 10mio asset and 5mio liability. That would also allow you to retain an asset overseas while your partner has an asset plus liability here

BTW On the subject of mortgages between parties of the same sex I can confirm it is technically possible, even if you may find it diffiicult to get a bank to do it. The reason I know is that while working for a bank here I got agreement from the bank to loan 50% to a same sex couple, where the foreigner guaranteed the mortgage for the Thai. Initially tit didn't conform to the bank's normal lending procedures, as there was no formal legal relationship between the foreigner and the thai, but as I was a senior person and could recommend the foreigner, I could help pus things thru. I'm not really in that position now, but I can tell you having gone thru the legalities it is possible. The bank's compromise was 50% max.

Mutual funds/unit trusts in Thailand - you can put them in joint names - me and my wife do.

Setting up a holding company might be another option. You could also retain control of the company and shares in it pass on death. Might be inside or outside Thailand

Basically what we do is certain assets I can't hold or are difficult put in my wife's name - eg property. Then balance it up with ones I can. You could do similar for Thai IHT. Taxable your partner holds. Non-taxable you hold.

Cheers

Fletch

Edited November 17, 2014 by fletchsmile

[wordchild]

As fletch says using a joint name structure (in say Singapore) can be a very effective weapon in dealing with any inheritance tax. If it is set up so that either partner can act with full authority, then on the death of one, the survivor can transfer the assets into their sole name without waiting for all the legal stuff to take its course. Obviously this kind of arrangement needs a fair amount of trust on both sides.

One issue you may have though, is that some banks/ brokers can get a little siffy about moving assets from a single name to a joint name as it is regarded as a change of beneficial ownership, this can be especially the case where the parties are not married. from what I understand banks have differing policies on this and you would just need to check around.

Edited November 17, 2014 by wordchild

[rickirs]

The assets, which must be Thai registered, include "houses, land, cars, bonds, deposits and securities." By inference assets that are not registerable such as cash, precious metals and jewels, etc. might avoid the tax. Keep in a safety deposit box with dual access.

[KittenKong]

It seems to me that the injustice is that married get an exemption whereas unmarried people (gay or not) dont. What on earth does being married have to do with tax? Nothing as far as I can see.

[cocopops]

It's not only unfair, it's inefficient and an invitation to creative workarounds. Much better is a simple ongoing wealth tax on the same classes of assets - set somewhere well below 0.5% per annum.

Governments like death taxes because they think folks won't complain as much as (a) nobody likes to dwell on their own or their parents pending demise and ( b ) everyone hates trustafarians anyway. They're a silly idea though.

Edited November 17, 2014 by cocopops

[cheeryble]

It seems to me that the injustice is that married get an exemption whereas unmarried people (gay or not) dont. What on earth does being married have to do with tax? Nothing as far as I can see.

Absolutely Kittenkong.

This is a penalty for not fitting in with societal norms.

I'm not happy about it as a straight person who chooses not to register a marriage with my (traditional ceremony) wife.

If I was gay (and not a Stoic) I'd be hopping mad best of luck to the OP hope you work out a tax free route.

Edited November 17, 2014 by cheeryble

[Langsuan Man]

There is a better explanation and more details, especially the "gift" tax which is part of the whole tax scheme published by the English language newspaper that we cannot quote here at Thai Visa

Just do a Google search with the term:

Thailand inheritance tax

and click on the results for that unnamed newspaper and then choose the article dated 18 Nov 2014

[fletchsmile]

There is a better explanation and more details, especially the "gift" tax which is part of the whole tax scheme published by the English language newspaper that we cannot quote here at Thai Visa

Just do a Google search with the term:

Thailand inheritance tax

and click on the results for that unnamed newspaper and then choose the article dated 18 Nov 2014

Yes, it's a reasonable article and worth a read.

The main problem with their articles on the top though is they consider only the Thai perspective. You really need to understand the repercussions that it may have for other countries. UK for example captures world wide assets for IHT, so OP also needs to bear in mind other jurisdictions: Thailand, where you move assets to, being UK domiciled etc

Cheers

Fletch

[AyG]

The main problem with their articles on the top though is they consider only the Thai perspective. You really need to understand the repercussions that it may have for other countries. UK for example captures world wide assets for IHT, so OP also needs to bear in mind other jurisdictions: Thailand, where you move assets to, being UK domiciled etc

It's true that they only consider the Thai perspective, and even for Thais the rules for offshore assets are (to date) unclear. It was previously suggested that Thai inheritors would be required to repatriate offshore investments and then pay tax. This hasn't resurfaced in recent reports of the legislation.

(In fact, isn't it ludicrous that it's got so far without the actual proposed legislation being publicly published?)

Being UK domiciled or not is another of my gripes. It's virtually impossible to determine whether one's UK domiciled (having had a British father) without actually dying. That's a real spanner in the works for inheritance tax planning.

From what's been disclosed, it would appear that the legislation discriminates harshly against unmarried couples (including same sex couples) and against people without children, as well as those who'd like to leave legacies to people who aren't family members. The legislation appears to be severely flawed. It's my hope that it's either abandoned, or dramatically rewritten. For a multitude of reasons I believe it can't stand in its current reported form.

[JimGant]

Gay people aren't allowed to marry, so anything I leave to my partner will be subject to personal income tax. The top rate is 35%, which kicks in at a very modest 4 million Baht.

Uh, why are the assets you'd leave to your partner subject to income tax? We're talking here about an inheritance tax, at 10% of assets above about $1.6 million US dollars -- of strictly your assets in Thailand. Presumably, your assets in Thailand reach this laudable amount, or you wouldn't be posting. Congratulations.

Yes, this is unfair that you can't treat your partner as a spouse for "postponing" the inheritance tax. But I say postponing, because the Thai spouse who receives, say, 100 million baht from her husband, is off the hook for inheritance tax -- until she dies. Then, because Thailand has no proviso for trusts, whereby her husband could have left 50 million to a Family Trust, whose income and necessary corpus could have funded the wife -- but is a separate entity for inheritance tax purposes, and thus exempt for 50 million baht. But, alas, the wife (more properly, her estate) now has to pay inheritance tax on that 50 million that couldn't find a home in a trust instrument -- because of Thai law re trusts.

So, yeah, the married couple gets some time-value-of-money interest, since the inheritance tax payment on assets over 50 million is delayed until the death of the second spouse. But, as currently conceived, the Thai inheritance tax law isn't really overly favorable to married couples.

[jdinasia]

We are married in the US.

He inherits from me in the US, I inherit from him here. We are looking at a couple of legal manoeuvres here to set up a trust that leases the land to my Amity company so I am not forced to sell.

Assets in Thailand will go to his niece and nephew, and in the US to any surviving siblings of mine on event of both of our deaths.

[KittenKong]

Being UK domiciled or not is another of my gripes. It's virtually impossible to determine whether one's UK domiciled (having had a British father) without actually dying. That's a real spanner in the works for inheritance tax planning.

I think that this: http://www.hmrc.gov.uk/cto/customerguide/page20.htm#5

and this: http://www.hmrc.gov.uk/cto/customerguide/page20.htm#4

are pretty clear.

I don't think I need to die to work out what they mean.

[Naam]

As fletch says using a joint name structure (in say Singapore) can be a very effective weapon in dealing with any inheritance tax. If it is set up so that either partner can act with full authority, then on the death of one, the survivor can transfer the assets into their sole name without waiting for all the legal stuff to take its course. Obviously this kind of arrangement needs a fair amount of trust on both sides.

One issue you may have though, is that some banks/ brokers can get a little siffy about moving assets from a single name to a joint name as it is regarded as a change of beneficial ownership, this can be especially the case where the parties are not married. from what I understand banks have differing policies on this and you would just need to check around.

correct!

as far as Singapore is concerned it all depends how plausible the case is presented to the bank. there's no problem if "family" but there might be problems if gay partnership because SG legislation is very gay unfriendly. the bank might cover its butt by seeking advice from the almighty MAS (Monetary Authority of Singapore).

If it is set up so that either partner can act with full authority, then on the death of one, the survivor can transfer the assets into their sole name without waiting for all the legal stuff to take its course.

if that is the case no legal stuff is involved. we (my wife and i) have done that recently in two cases by taking off family members who were added as "nominee" beneficiaries to portfolios in order to act in case of both our demise. no logistics were required when taking off a shareholder from a corporate account but in the case of a joint account a new account had to be established and the old one had to be closed.

note:

-Singapore probate is extremely difficult! if the total value of assets is SGD 3mm or more probate will be conducted by Singapore Supreme Court.

-Singapore legislation does not recognise "transmortal" power of attorney, id est with the death of the beneficiary all PoAs are automatically null and void. some (not all) banks have adjusted their internal regulations by accepting (on demand only) PoAs with the clause

"This Authority shall be continuing and shall be revoked only by receipt by the Bank of written notice signed by me/us (or by my/our personal representatives, as the case may be) of the revocation of this Authority, or of the death of me/any one of us, and in the absence of such notice this Authority shall continue in full force and effect and, without limiting the generality of the foregoing, all actions and things done by virtue of this Authority before the Bank receives any such notice of revocation or of my/our death (as the case may be) shall be binding upon me/us and my/our personal representatives and all other persons claiming from or under me/us."

Edited November 19, 2014 by Naam

[AyG]

Being UK domiciled or not is another of my gripes. It's virtually impossible to determine whether one's UK domiciled (having had a British father) without actually dying. That's a real spanner in the works for inheritance tax planning.

I think that this: http://www.hmrc.gov.uk/cto/customerguide/page20.htm#5

and this: http://www.hmrc.gov.uk/cto/customerguide/page20.htm#4

are pretty clear.

I don't think I need to die to work out what they mean.

I'm afraid you're being rather naive. The first link is irrelevant and simply says you're considered UK domiciled for tax purposes, even if you're not so domiciled in certain circumstances. The second says you need to "provide strong evidence that you intend to live [in another country] permanently or indefinitely". There is no explanation whatsoever of what "strong evidence" is necessary or sufficient. Note it also says "Living in another country for a long time, although an important factor, does not prove you have acquired a new domicile."

[KittenKong]

I'm afraid you're being rather naive. The first link is irrelevant and simply says you're considered UK domiciled for tax purposes, even if you're not so domiciled in certain circumstances. The second says you need to "provide strong evidence that you intend to live [in another country] permanently or indefinitely". There is no explanation whatsoever of what "strong evidence" is necessary or sufficient. Note it also says "Living in another country for a long time, although an important factor, does not prove you have acquired a new domicile."

The first link says this:

" For inheritance tax purposes, there is a concept of 'deemed domicile'. This means even if you are not domiciled in the UK under general law we will treat you as domiciled in the UK at the time of a transfer if

-you were domiciled in the UK within the three years immediately before the transfer, or

-you were resident in the UK in at least 17 of the 20 income tax years of assessment ending with the year in which you make a transfer."

This seems very precise to me.

As for providing "strong evidence", having a home and perhaps a family in another country and living there all the time, and having no UK property or immediate UK family and rarely if ever visiting would seem like fairly strong evidence to me. From their descriptions, HMRC are clearly concerned about people who are holidaying abroad for just a few months or years with a view to evading tax, and who haven't really left the UK at all in spirit.

Anyway, if this is a concern, why not just arrange your affairs so as not to be liable to UK inheritance tax even if you are domiciled there? That's what I have done, though not for that reason.

[Time Traveller]

When it doubt always follow the example of the Dear Leader Army General Prime Minister.

So just transfer the assets from your name to a holding company. Since companies don't die, when you do only your personal assets will be subject to the inheritance tax. The assets held by the company won't be subject to any such tax.

[Naam]

When it doubt always follow the example of the Dear Leader Army General Prime Minister.

So just transfer the assets from your name to a holding company. Since companies don't die, when you do only your personal assets will be subject to the inheritance tax. The assets held by the company won't be subject to any such tax.

here we go again with the old fairy tale which is since years irrelevant. no bank accepts assets held by a holding or any corporation without natural persons as beneficiaries except if the company is publicly listed and shares can be exchange traded.

greetings from KYC (Know Your Client), OECD regulations and last not least FATCA.

Edited November 19, 2014 by Naam

[Time Traveller]

When it doubt always follow the example of the Dear Leader Army General Prime Minister.

So just transfer the assets from your name to a holding company. Since companies don't die, when you do only your personal assets will be subject to the inheritance tax. The assets held by the company won't be subject to any such tax.

here we go again with the old fairy tale which is since years irrelevant. no bank accepts assets held by a holding or any corporation without natural persons as beneficiaries except if the company is publicly listed and shares can be exchange traded.

greetings from KYC (Know Your Client), OECD regulations and last not least FATCA.

BS.

Owners of a company are called shareholders, not beneficiaries. And they can in fact be corporate shareholders, not just natural persons.

Banks do want authorizedf signatories, usually these are directors chosen by but not necessarily the same asthe shareholders.

Edited November 19, 2014 by Time Traveller

[Naam]

When it doubt always follow the example of the Dear Leader Army General Prime Minister.

So just transfer the assets from your name to a holding company. Since companies don't die, when you do only your personal assets will be subject to the inheritance tax. The assets held by the company won't be subject to any such tax.

here we go again with the old fairy tale which is since years irrelevant. no bank accepts assets held by a holding or any corporation without natural persons as beneficiaries except if the company is publicly listed and shares can be exchange traded.

greetings from KYC (Know Your Client), OECD regulations and last not least FATCA.

BS.

Owners of a company are called shareholders, not beneficiaries. And they can in fact be corporate shareholders, not just natural persons.

Banks do want authorizedf signatories, usually these are directors chosen by but not necessarily the same asthe shareholders.

i will not waste time discussing colours with blind people.

[Robert24]

a few options - some already mentioned but important:

1) Gift: The new inheritance law and law about gifts only comes into effect somewhen next year. So before this law comes into effect you can give any gift to your partner tax free. Especially if you own property/land, you may want to consider to give this to your partner in your case before the new tax law comes into effect assuming your partner is a lot younger than you.

2) Assets outside Thailand: keep some assets outside Thailand as mentioned by other people, i.e. safety deposit boxes etc. Not sure whether you can open a joint bank account as a gay couple in Singapore, I wouldn't be surprised if that is not possible. But you may want to consider other jurisdictions like Switzerland, Hong Kong etc.

3) Get a tax consultant and get them to outline all options, i.e. can you create a trust that allows you to protect the assets in the way you like.

4) or you just change your domicile to a country that doesn't have inheritance tax, i.e. Singapore, Hong Kong etc. You can still spend a lot time in Thailand without having to be a resident here.

But good point to bring this up. Everyone should think about this scenario and how they will be impacted by this new tax law (provided it will get passed and subsequent governments don't scrap it again).

[AyG]

a few options - some already mentioned but important:

1) Gift: The new inheritance law and law about gifts only comes into effect somewhen next year. So before this law comes into effect you can give any gift to your partner tax free. Especially if you own property/land, you may want to consider to give this to your partner in your case before the new tax law comes into effect assuming your partner is a lot younger than you.

2) Assets outside Thailand: keep some assets outside Thailand as mentioned by other people, i.e. safety deposit boxes etc. Not sure whether you can open a joint bank account as a gay couple in Singapore, I wouldn't be surprised if that is not possible. But you may want to consider other jurisdictions like Switzerland, Hong Kong etc.

3) Get a tax consultant and get them to outline all options, i.e. can you create a trust that allows you to protect the assets in the way you like.

4) or you just change your domicile to a country that doesn't have inheritance tax, i.e. Singapore, Hong Kong etc. You can still spend a lot time in Thailand without having to be a resident here.

But good point to bring this up. Everyone should think about this scenario and how they will be impacted by this new tax law (provided it will get passed and subsequent governments don't scrap it again).

Thanks for the suggestions.

The full details of how the taxes are to be implemented haven't been made public yet. (I think it scandalous that such a major change is being made without any wider consultation.)

Anyway, addressing the various points:

(1) Relationships can break down for various reasons. My investments are my only source of income, and I don't have medical insurance. I would be loathe to give away the bulk of my assets before my death becomes inevitable.

(2) The reported rules require that assets held overseas be repatriated to Thailand and the tax paid.

(3) Trusts aren't recognised in Thai law. From an English law perspective, I couldn't put my assets into a trust and continue to benefit from them personally. (Though the point of containing a tax consultant is a good one, and this is something I plan on doing once the new laws are clear.)

(4) My understanding is that the law will affect anyone who's been living in Thailand for 3 years, irrespective of domicile. Changing domicile (from a UK perspective) to somewhere such as Singapore would be very difficult. It would also mean that I would need to spend most of my time there - away from my partner. I live full time in Thailand. Have done so for many years, and want to continue to do so.

At the moment I think I just need to wait until the full details are made public, then take professional advice.

[BritManToo]

So, yeah, the married couple gets some time-value-of-money interest, since the inheritance tax payment on assets over 50 million is delayed until the death of the second spouse. But, as currently conceived, the Thai inheritance tax law isn't really overly favorable to married couples.

Why are you assuming the Thai spouse doesn't get married again?

[Naam]

The reported rules require that assets held overseas be repatriated to Thailand and the tax paid.

[JimGant]

Why are you assuming the Thai spouse doesn't get married again?

Yeah, why not.... If the surviving spouse married someone considerably younger, the tax man could be cheated ad infinitum. Better yet, allow a mia noi to be considered a "spouse" for inheritance tax purposes.