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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I need to find out the rules gifts (£250) exempt

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I need to find out the rules for annual gifts (£250) exempt from IHT - when the beneficiaries are now AUSTRALIAN citizens (son,daughter-in-law, 2 children).
1. What are the tax implications if a) my son has retained a bank account in UK ?
b) his only accounts are in Australia ?
2. Must separate accounts be opened for each individual, or can I pay the lump sum of £1000 (4 x £ 250) into his account for him to distribute himself ? Any tax advantage one way or the other ?
3. What is the procedure for 1 a) and 1 b) ?
Hi.Can you tell me what ages the two children of your son are please.
Customer: replied 2 years ago.

The boy is 16, the girl is 11 years old.


Leave this with me while I draft my answer.
Hi again.

An individual can make gifts of £250 to as many individual recipients as they wish to. They will be exempt from UK Inheritance Tax but it would be as well to keep a written record of each gift. The fact that the proposed recipients in your case are Australian citizens does not affect the UK IHT exemption. IHT is charged on the donor, not the recipient.

1 If your son's gift is put into a UK bank account, it still won't be taxable on him. As he is UK domiciled, when he dies his worldwide estate will be liable to Inheritance Tax unless his executors can convince HMRC that he has lost his UK domicile.

If your son's accounts are in Australia, the gifts are still exempt from IHT in the UK. I'd be surprised if the recipient of a gift in Australia is taxable on it there.

2 It would be preferable for each gift to be paid into separate accounts. The children's accounts would need to have a parent as a trustee until the children can take control themselves. If it is more convenient to pay the £1,000 into your son'ss account, you should write a letter to him explaining how the sum should be divided to make it clear that it is not all meant for your son. There really isn't a tax problem either way but the money should be divided as soon as possible.

3 I'm not sure what you mean by procedure. All you really need to do is make out a cheque to each recipient and keep a written record. As two of the proposed recipients are minors, I see no problem with the cheques for them being made out to their parents as trustees unless they already have a child account with a bank in which case you could make out the cheque to the account name. It might be Mr ***** ***** for ***** *****, (minor) for example. Alternatively, you could make the gifts via internet banking.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Thanks for your helpful advice. Re. your comments:

1) 'As your son is UK domiciled.....' No, the family have emigrated to Australia. (Sorry not to have made this clearer.) Can I still just send these 'gifting' cheques without my son incurring tax penalties ? It seems too simplistic!

Am very naive about these matters. Grateful for your help. Lorna

1 Domicile of birth is very difficult to change. Your son is resident in Australia and not tax resident in the UK. Domicile and tax residency are two very different things. Take a look here for more information.

IHT exempt gifts are meant to be simple. Your son will not be liable to tax on them in the UK. Many parents make gifts to their children and many are used to put down deposits on property. If they were taxable, you would have seen protests on the streets and the Treasury would be bombarded with vitriolic letters from irate parents and adult children.

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