Michael

As far as the IRS is concerned, any amount of a gift to the recipient is not taxable.

The issue is whether the UK parents are reporting that income to the UK government and paying taxes on it. Also there may be gift taxes in the UK that the parents are supposed to pay. However neither of those are the problem of the recipient of the gift but the parents problem.

Usually countries limit the amount of the gifts by donors otherwise they could just give away their property to their children before they die and avoid estate taxes. Without such laws, this could be a never ending cycle of avoiding estate taxes. This is not called estate planning but instead usually referred to as tax fraud or tax evasion.

In the US, I can give $13,000 per year to any number of people without paying gift taxes and that is referred to tax avoidance and is totally legal but if I gave my son $26,000 during the year and not reported $13,000 of that as gift taxable, that is tax evasion.

Yorkieabroad

Need to be careful mixing up income/profit/inheritance/estate/capital gains and the taxes thereon. Same as the OP needs to be careful how he refers to money he receives....whether it is an income or a gift. Big difference.

Yorkieabroad

I can't remember the UK limit for gifts, but that is the parents problem, not the recipients. Plus, if the givers death occurs within (?)7 years of the gift, I believe HMRC will want the gift included in the estate for tax purposes.

Where is Nun when you need him?

Speedwell

Yup, that was kind of my point

Yorkieabroad

You've totally lost me now.....

kins

I'd have thought you want the property put into trust, with you and your wife named as the beneficiaries.

http://www.telegraph.co.uk/finance/p...ly-riches.html might help...

As the parents are in the UK, and they are the ones who own the property, it is subject to UK inheritance tax until 7 years after they've gifted it to you. So I'd go for a British solicitor to set it up.

Speedwell

My point was that the same money can be taxed any amount of times depending on how it changes hands, and that it is income unless it isn't, and the whole thing is just nuts and you need help to untangle it. I was fortunate in my accountant but in the end you just have to be informed.

Bob

Either way, a one off gift of money now and again isn't going to raise an eye brow. Something given on a monthly basis will and is more likely to trigger an audit.

Whether anything will come of it is some what besides the point, an audit is a PIA.

JAJ

Except that a gift is absolutely not income. And the federal government does not tax receipt of gifts. A few states do, but unless one is living in these states, the regular gifts mentioned have no U.S. tax impact.

JAJ

The amounts being discussed, $500 or so a month, are highly unlikely to trigger anything.

Although it would be a good idea to keep some documentation of the source of the money - for example, bank documentation showing which account the funds came from, just in case.

JAJ

Based on what you've told us, the receipts are gifts and not reportable as income. Since the amounts are under the threshold to file form 3520, you shouldn't need to even report them to the IRS. The income is the parents' and they should be reporting it (the rental profit) to HMRC.

A few states tax receipts of gifts and inheritances, so check to see if you're not in one of these. It would be an additional complication if so.

On the U.K. side, there is probably no Inheritance Tax impact either, since amounts under GBP3,000 can be given free of tax, and there is also an exemption for regular small gifts given out of income.

If the parents want to actually give your wife the property, they have to consider both Inheritance Tax, and U.K. capital gains tax, and you also need to consider U.S. capital gains tax. This is one of the cases where you really would need to do some cross-border tax planning with a competent professional since there are a number of inter-related issues.

- If your wife inherits the property, it's part of the estate for Inheritance Tax (not good) but the U.K. gives an exemption on capital gains (good). Also, if you inherit an asset in the U.S. your base cost for future capital gains is the fair market value at the time.

- On the other hand, if your wife receives a gift of a property from her parents they have to live seven years to avoid an exposure to Inheritance Tax. However, they may have to pay U.K. capital gains tax based on an assumed selling price equal to the fair market value at the time. At the same time, (unless you can find a tax treaty exemption), your wife's U.S. base cost for capital gains will normally be the donor's original cost. As a result, it's normally not tax efficient to give an appreciated asset to a U.S. person. It is usually better to sell the asset and give the cash.

- You should avoid trusts, etc, unless you really understand both U.K. and U.S. tax consequences. These can involve a lot of tax issues/reporting and can be difficult to unravel once set up.

If your parents want to proceed with the gift, it's important to run all different scenarios from a U.K./U.S. tax perspective. And while usually, people don't need a dual qualified tax professional, a situation like this is one of the exceptions.

Also check to ensure your foreign bank account balances are below the thresholds for FBAR/FATCA (form 8938) - if they are above, you need to file these forms as applicable.

Michael

You are correct. I didn't realize that the recipient of property as a gift (not cash) uses the cost basis of the donor but an inheritor of property uses the value at the time of the transfer as the cost basis when calculating capital gains taxes owed by recipient when the property is sold.

http://taxes.about.com/od/capitalgai...t_property.htm