Is there a Gift tax imposed by the UK?

I understand I am not going to pay US tax on a large cash gift from a family member. Apparently it is the Gifter not the Giftee who pays the tax, and even then only if it is more than the lifetime gift limit.  My sister will file a gift tax return saying she gave it with her nomal IRS taxes next year and I will do the same saying I received it - but neither of us pays tax.

Would I need to report the gift to HMRC and would the UK tax it?

I understand I am not going to pay US tax on a large cash gift from a family member. Apparently it is the Gifter not the Giftee who pays the tax, and even then only if it is more than the lifetime gift limit.  My sister will file a gift tax return saying she gave it with her nomal IRS taxes next year and I will do the same saying I received it - but neither of us pays tax.

Would I need to report the gift to HMRC and would the UK tax it?

You don’t need to report it to HMRC. It is only once you die that HMRC would do a look back at the gifts given, and only 7 years because after 7 years a gift is exempt from inheritance tax. (We recently made a large gift to our son and was pleasantly surprised to find that there is no equivalent HMRC form to the IRS gift form)

Unless your sister is a covered expatriate there is no US tax or reporting for you as the recipient of a gift.  You may still have FBAR or Form 8938 filing should the gift be held or moved outside the United States. There is no UK reporting for the receipt of a gift (except from a trust); until you die when the value of all of your assets form your estate.

Finally some good news!!

But this may of course change. A proposal has been made for a "lifetime receipts tax". Politicians are showing interest. The recent Resolution Foundation Report says,

"We recommend abolishing inheritance tax and replacing it with a lifetime receipts tax that is levied on recipients with fewer exemptions, a lower tax-free allowance and lower tax rates. The extra revenues should support a £10,000 ‘citizen’s inheritance’ – a restricted-use asset endowment to all young adults to support skills, entrepreneurship, housing and pension saving."

As part of the Lifetime Receipts Tax system, each individual would have a lifetime allowance of £125,000, after which tax would be payable at a rate of 20%, up to £500,000. Beyond this, tax would be payable at a rate of 30%, the Resolution Foundation stated.

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But this may of course change. A proposal has been made for a "lifetime receipts tax". Politicians are showing interest. The recent Resolution Foundation Report says,

"We recommend abolishing inheritance tax and replacing it with a lifetime receipts tax that is levied on recipients with fewer exemptions, a lower tax-free allowance and lower tax rates. The extra revenues should support a £10,000 ‘citizen’s inheritance’ – a restricted-use asset endowment to all young adults to support skills, entrepreneurship, housing and pension saving."

As part of the Lifetime Receipts Tax system, each individual would have a lifetime allowance of £125,000, after which tax would be payable at a rate of 20%, up to £500,000. Beyond this, tax would be payable at a rate of 30%, the Resolution Foundation stated.

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That sounds counter-intuitive to me. No inheritance tax would mean that a person could die with a £10 million estate going to their children with no tax being paid but if they wanted to make gifts to their children before they died the gifts would be heavily taxed.  That incentivises folks to hang onto their money rather than gifting some of it to folks who would most likely spend it anyway paying taxes via VAT and stimulating the economy. The bank of Mom and Dad suddenly becomes very expensive except as a pension plan for after they die.

But hey, government does what government does ....

I think the point is that the total tax collected from the recipient children, at whatever point, either before or at the parent's death, would be even greater than that which is presently collected via IHT. There would, however, be an incentive for a donor to spread gifts amongst a larger number of people. I believe a system like this already exists in Spain.

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