Gift tax
Gift tax
- What it is
- A tax on the gratuitous transfer of property or money
- Why it exists
- So that property cannot be given away during one’s lifetime to avoid inheritance tax
- Who pays
- Depending on the country — the donor or the recipient
- There are usually reliefs
- For close relatives and within set thresholds
- Why it matters to you
- Gifted money must be explainable in the source of funds check
In plain words
Gift tax arises on the gratuitous transfer of property or money. It exists alongside inheritance tax: without it, everything could be given away during one’s lifetime and taxation avoided entirely. That is why the rules are usually designed so that both situations are taxed comparably.
The structures differ. In some places the donor pays the tax, in others the recipient. Almost everywhere there are reliefs for close relatives and tax-free thresholds — amounts within which a gift is not taxed. Some countries have rules aggregating gifts over a period, so that a large transfer cannot be split into small ones.
For our clients this topic matters from an unexpected angle. If part of the funds for a programme investment was received as a gift — from parents, a spouse or relatives — this will have to be explained in the source of funds check. You need a deed of gift, confirmation that the donor had the money and where it came from, and sometimes proof that tax was paid. A verbal “my parents helped me” does not work in the check.
When it concerns you
What to take into account
- Who pays under the country’s rules
- Rate and thresholds
- Aggregation over a period
- Reliefs for close relatives
- Rates for distant relatives
- Evidence of kinship
- Deed of gift
- Confirmation of the transfer
- Payment of the tax
- The donor’s source of funds
- Explanation to the bank
- The programme check
How to document it correctly
- 01Check the rules of both countries
- 02Execute a deed of gift
- 03Make the transfer officially
- 04Pay the tax if required
- 05Keep the full set
What you need to know
- Gift tax exists alongside inheritance tax
- There are usually reliefs for close relatives
- In some countries gifts are aggregated over a period
- A cross-border gift may engage the rules of two countries
- Gifted funds require documentary confirmation
Common mistakes
- Transferring a large sum without a deed of gift
- Not checking the rules of the recipient’s country
- Splitting a gift to get around thresholds
- Not keeping confirmation of where the donor’s money came from
- Expecting to explain help from relatives verbally
What this means for a BRIDGES client
Help from the family is a normal and common source of funds. But in the check it must be traceable through documents: a deed, a transfer, the source of the donor’s money. We prepare this chain in advance.
Frequently asked questions
01 /What is gift tax?
A tax on the gratuitous transfer of property or money. It exists so that inheritance tax cannot be avoided by giving assets away during one’s lifetime.
02 /Who pays it?
It depends on the country: in some jurisdictions the donor, in others the recipient. The rules are checked in both countries.
03 /Are there reliefs?
As a rule, yes: for close relatives and within tax-free thresholds. The specifics depend on the jurisdiction.
04 /Is a deed of gift needed?
It is strongly recommended, especially for large sums. Without a document, explaining the source of funds in the check is much harder.
05 /Is the donor’s source of money checked?
Yes. The check looks at the whole chain, so confirmation of the donor’s source of funds is gathered too.
06 /Can the sum be split into parts?
Splitting to get around thresholds is a bad idea: in many countries gifts are aggregated over a period, and to compliance it looks suspicious.
See also
Read next
This material has undergone editorial review by BRIDGES.
Relatives contributing part of the sum?
We will help document the gift so that the check accepts it without questions.