The threshold applies to both bequests made at death as well as lifetime gifts in excess of an annual gift tax exclusion. Maximising contributions to UK pensions can have the potential to greatly reduce inheritance tax exposure in addition to the ongoing income tax benefits created.UK-domiciled individuals who fund discretionary trusts will attract a 20% tax on the transfer. Alternatively, with a projected 4.2% of UK deaths resulting in an inheritance tax liability based on the most recent statistics published by HMRC, a decidedly higher number of British-Americans will face exposure to such taxes. Fortunately, unlike in the United States, non-domiciled individuals will be afforded the same £325,000 exemption that UK-domiciled individuals benefit from.Notably, the increased thresholds established under the Tax Cut and Jobs Act will expire in 2026 at which point the exemption will revert to pre-2018 levels of $5.49 million per individual, with adjustments for inflation.Domicile can be described as an individual’s true, fixed, and permanent home. The Estate Tax on the value of the assets transferred is then deferred until the surviving spouse takes money out of the QDOT or dies. Generally, there is no tax liability for you, provided the donor was not a covered expatriate at the time they relinquished US citizenship.If you would like advice on making gifts to other individuals, please contact your usual Frank Hirth advisor.Furthermore, cash is not a chargeable asset for capital gains tax purposes in either jurisdiction, but when gifting other assets to individuals other than your spouse there are key differences in the treatment which can create a tax headache.If you are a gift recipient and you are subject to both income tax in the UK and the US, advice should be sought ahead of a decision to sell the asset so that your foreign tax credit position in both jurisdictions can be optimised.For spouses/civil partners with the same domicile, generosity knows no bounds and assets can generally pass between the two with no estate tax (or capital gains tax) consequences, provided of course there is a genuine gift being made. For those with different domiciles, a bit more care is needed.For those individuals considering gifting assets that have fallen in value as a tax planning strategy to crystallise and claim the loss, HMRC have beaten you to it. A loss made on a gift to a family member (child, stepchild, sibling) is ringfenced and can only be offset against a capital gain made on a gift made to that same person.Gifts to up to the value of £325,000 are exempt, as this falls within the UK nil rate band for inheritance tax (IHT). Any value in excess of this will be treated as a ‘potentially exempt transfer’ until the donor has survived 7 years, after which the value will be outside of their estate completely (an election can potentially be made by the receiving individual to be treated as UK domiciled).A gift does have to be exactly that – i.e. In the United Kingdom, the government taxes inheritances at a rate of 40% on estates worth more than £325,000.
While US citizens making gifts in excess of $15,000 may need to file a gift tax return, no gift tax will be due until the generous lifetime exemption is fully utilised. not be made with strings attached or with further claims on the asset. My understanding is that she will owe no inheritance tax.
However, a gift may also be treated as a disposal for capital gains tax purposes and so the saying ‘it’s the thought that counts’ needs to apply not only to your choice of gift but the wider tax implications too.Anyone considering making a gift should check the position based on their specific circumstances. This is particularly important for those long term UK residents who have become deemed UK domiciled for inheritance tax, but who maintain their domicile of origin in another country and who will potentially need to consider the interaction between the gift and estate tax regimes in both jurisdictions.With the holiday season upon us, thoughts may well turn to making gifts to family and friends. Whether you’re planning a modest token of affection or a more extravagant gesture, there are a number of ways to be generous without fear of tarnishing the season of goodwill by triggering a tax bill, either for the giver or the recipient.The UK and the US tax authorities aren’t totally Scrooge-like in their attitude to those who want to bestow good fortune on others, although the provisions in each country are somewhat different.Gifts between spouses/civil partners are deemed to be on a ‘no gain, no loss’ basis, even where there are mixed domiciles and so there is no exposure to capital gains tax in either the UK or the US.Gifts to the value of £250 can be made to as many other individuals you wish in a tax year and are ignored for IHT purposes.