Updated
GL-G-04
01 / In 30 seconds
The short answer
- 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
02 / In plain words
What Gift tax means
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.
A case from practice
Part of the investment sum was given to a client by their parents. We executed a deed of gift in advance and gathered documents on the donors’ source of funds. The check accepted the explanation without further requests.
When it concerns you
- Parents helping to buy a home
- Transferring funds to children
- Gifting a stake in a business
- Funds for a programme investment
- Transferring real estate to a relative
- Planning the transfer of capital during one’s lifetime
03 / What it covers
What to take into account
Tax
- Who pays under the country’s rules
- Rate and thresholds
- Aggregation over a period
Kinship
- Reliefs for close relatives
- Rates for distant relatives
- Evidence of kinship
Documents
- Deed of gift
- Confirmation of the transfer
- Payment of the tax
Compliance
- The donor’s source of funds
- Explanation to the bank
- The programme check
04 / How it works
How to document it correctly
Check the rules of both countries
Execute a deed of gift
Make the transfer officially
Pay the tax if required
Keep the full set
05 / Key facts
What you need to know
01
Gift tax exists alongside inheritance tax
02
There are usually reliefs for close relatives
03
In some countries gifts are aggregated over a period
04
A cross-border gift may engage the rules of two countries
05
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
06 / Expert advice
How to prepare in advance
If part of the funds for a programme comes from relatives, the gift is documented: a deed, an official transfer and, if required, payment of the tax. Confirmation of where the donor’s money came from is gathered separately — the check looks at the whole chain, not only the last transfer.
What we do for you. 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.
Klara RihterBanking compliance and source of funds specialist
07 / Questions
Frequently asked questions
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.
It depends on the country: in some jurisdictions the donor, in others the recipient. The rules are checked in both countries.
As a rule, yes: for close relatives and within tax-free thresholds. The specifics depend on the jurisdiction.
It is strongly recommended, especially for large sums. Without a document, explaining the source of funds in the check is much harder.
Yes. The check looks at the whole chain, so confirmation of the donor’s source of funds is gathered too.
Splitting to get around thresholds is a bad idea: in many countries gifts are aggregated over a period, and to compliance it looks suspicious.
INITIAL ASSESSMENT
Tell us what outcome your family needs
We will design a solution for your case, choose the country and the right status, and take the whole process through to the result.
