Dougster75

I've found quite a few old threads on this and it seems that we will need to get a professional opinion on this but if anyone coincidentally has had the same issue and got a solid answer, would be great to hear from them.

If someone in the UK were to be making a gift to hopefully avoid inheritance tax on their estate using the Seven-Year rule and that gift was to a US-based visa holder. Is there any potential for US tax liability for the beneficiary? Clearly a UK tax liability still exists for the estate on that gift if the benefactor dies within the 7 years.

Appreciate any thoughts.

Cheers,

Doug.

Michael

US tax law doesn't tax the recipient on gifts.

chartreuse

I wonder whether making the gift direct to the recipient in the USA (rather than, e.g. to their bank account in the UK) might then sidestep the 7 year rule?

Dougster75

I believe that the liability would still fall to the estate which would be in the UK and therefore still subject to the tax. It's a nice thought though (except obviously the death bit).

chartreuse

Yes, apart from that bit, of course.

dolega

The gift might be subject to income tax or capital gains tax thereafter. Incidentally, and if gift taxes were an issue, according to the IRS website, under special arrangements the donee may agree to pay the tax instead.

JAJ

Federal tax law doesn't. Individual states might or might not have a tax on recipients of gifts.

UK gift/inheritance tax is levied on the estate, so if it's a British resident and/or property located in Britain it can come into play. But 94% of UK estates never fall into the Inheritance Tax net, in any case.

Dougster75

Thanks Dolega but would be interested to know the source of your info so that we can see if it applies to our situation. The donor in this case would not be a US resident and I believe consequently would not need to pay US tax. As the donee, we would be unlikely to want to make the special arrangement to pay the tax. I found this on the IRS website which appears to indicate that we would need to declare the gift for information purposes but not pay tax....

"December is a time when we think of gifts -- both giving and receiving them. If you are a U.S. person who received foreign gifts of money or other property, you may need to report these gifts on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Form 3520 is an information return, not a tax return, because foreign gifts are not subject to income tax. However, there are significant penalties for failure to file Form 3520 when it is required."

Source: http://www.irs.gov/businesses/articl...200722,00.html

JAJ

I think what was meant is that tax would not be paid on the gift, but if the gift generated income (bank interest, for example) that would be taxable in future. And there might be a capital gain if the asset was sold later on.

Dougster75

Gotcha. That would be reasonable. Thanks all.

JAJ

Do check whether your state imposes a tax on gifts/inheritances received.

dolega

JAJ has read it correct. With regard to the special arrangements, check out: http://www.irs.gov/businesses/small/...8139,00.html#1