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US/UK giving

What are the different rules for lifetime giving in the UK vs the US? How do you navigate gifting between US and UK taxpayers?

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Published 10 November 2021

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Considering the UK tax rules on lifetime gifts can be complex, but having to marry these with the corresponding US rules if the donor and/or recipient are also US taxpayers can make the task yet more difficult.

A donor can generally make gifts free from UK inheritance tax (“IHT”) if they survive that gift by at least seven years. By comparison US taxpayers, for example US citizens and long-term green card holders, have an annual US gift tax allowance of currently $15,000 per recipient. Gifts over this allowance will use up the donor’s lifetime gift and estate tax allowance, currently $11,700,000, although this allowance is due to reduce considerably over the coming years.

Gifts are disposals for UK capital gains tax (“CGT”) purposes, and a UK resident donor will pay CGT at their marginal rate on gifts subject to various factors, such as the donor’s annual allowance (currently £12,300) and the remittance basis of taxation, if relevant. In turn the recipient receives the asset at its uplifted open market value for their own future CGT purposes. Cash is generally not a chargeable asset and so gifts of cash do not attract a CGT charge.

By comparison, gifts are not disposals for US income tax purposes and so the recipient receives no step-up in tax basis, instead acquiring the asset at the donor’s acquisition cost. This can lead to a mismatch in the future tax consequences of a later disposal if the recipient is a US and UK taxpayer (for example a UK resident US citizen), since the asset can have two different acquisition costs for the two taxes.

The donor and recipient also need to contend with exchange rate fluctuations, since the respective acquisition and disposal values are calculated in dollars and sterling which might have changed between the two dates.

These are only some of the reasons why the US consequences need to be considered when US taxpayers are considering making or receiving lifetime gifts.

 

Read our previous Lifetime Giving article: Gifts and Lasting Powers of Attorney (“LPAs”)

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Shorter Reads

US/UK giving

What are the different rules for lifetime giving in the UK vs the US? How do you navigate gifting between US and UK taxpayers?

Published 10 November 2021

Associated sectors / services

Authors

Considering the UK tax rules on lifetime gifts can be complex, but having to marry these with the corresponding US rules if the donor and/or recipient are also US taxpayers can make the task yet more difficult.

A donor can generally make gifts free from UK inheritance tax (“IHT”) if they survive that gift by at least seven years. By comparison US taxpayers, for example US citizens and long-term green card holders, have an annual US gift tax allowance of currently $15,000 per recipient. Gifts over this allowance will use up the donor’s lifetime gift and estate tax allowance, currently $11,700,000, although this allowance is due to reduce considerably over the coming years.

Gifts are disposals for UK capital gains tax (“CGT”) purposes, and a UK resident donor will pay CGT at their marginal rate on gifts subject to various factors, such as the donor’s annual allowance (currently £12,300) and the remittance basis of taxation, if relevant. In turn the recipient receives the asset at its uplifted open market value for their own future CGT purposes. Cash is generally not a chargeable asset and so gifts of cash do not attract a CGT charge.

By comparison, gifts are not disposals for US income tax purposes and so the recipient receives no step-up in tax basis, instead acquiring the asset at the donor’s acquisition cost. This can lead to a mismatch in the future tax consequences of a later disposal if the recipient is a US and UK taxpayer (for example a UK resident US citizen), since the asset can have two different acquisition costs for the two taxes.

The donor and recipient also need to contend with exchange rate fluctuations, since the respective acquisition and disposal values are calculated in dollars and sterling which might have changed between the two dates.

These are only some of the reasons why the US consequences need to be considered when US taxpayers are considering making or receiving lifetime gifts.

 

Read our previous Lifetime Giving article: Gifts and Lasting Powers of Attorney (“LPAs”)

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