The tax position will depend on the specific facts and circumstances – the scenario is based on a UK resident individual receiving a cash gift from a non-UK resident and non-UK domiciled person (eg friend, parents, or family members).
1. Recipient’s tax position
At present, HMRC does not view genuine gifts as a transfer of capital or as income.
Therefore, on the receipt of the cash gift, the UK does not tax receipts of capital, so it is not subject to income tax or capital gains tax on the recipient.
If the cash is placed into an interest bearing bank account that generates income, then this would be subject to income tax.
2. The donor’s tax position
Inheritance tax – what do you need to think about with cash gifts?
The gift may be exempt from UK IHT – the only exception would be if the donor’s estate falls under UK IHT (eg UK domiciled or the cash is in a UK bank account) and they do not survive 7 years from the date of the gift.
If the cash gift became chargeable to IHT, then the liability may need to be paid by the recipient, unless stated otherwise in the will.
In any case, the donor would benefit from the nil rate band for IHT, but any amounts above this may be subject to IHT up to 40 percent.
Gifting of the cash – does this create a Capital Tax (CGT)?
A gift of cash will not create UK CGT liability for the donor. This is an exception to the rule and does not apply to all gifts. Gifts of certain assets can be subject to UK IHT so advice should be sought before any gifts are made.
The taxation of this can be complex, so advice should be taken to ensure there are no inadvertent tax charges in the cash gift on the recipient or the country the donor is tax resident in.
If you have any queries about being non-UK resident or non-domiciled, please get in contact with us, and we can provide the tax advice you need.
