gift tax

A tax formerly levied in the UK on gifts having a substantial value. Capital transfer tax was in part a gift tax, the aim being to stop the practice of transferring property during a person's lifetime, thus avoiding death duties. In the USA, the tax is levied on the value of the property given away (payable by the donor).

A gift tax is a transfer tax imposed on the value of certain gifts.

The treatment of a gift for purposes of the U.S. gift tax (the transfer tax) should not be confused with the treatment of gifts for other tax purposes. For example, for U.S. income tax purposes most gifts are excluded (under Internal Revenue Code section 102, 26 U.S.C. § 102) from the gross income of the recipient, and thus are not taxed as income. In 1976, Congress unified the gift and estate taxes so that donors close to death could not circumvent the estate tax by gifting shortly before death. Even so, the tax on gifts made before death is tax exclusive whereas testamentary gifting is tax inclusive thereby making inter vivos gift less tax burdensome. Exceptions include certain gifts made within the 3 year window before death and gifts in which the donor retains an interest like gifts of remainder interests that are not either qualified remainder trusts or charitable remainder trusts. The remainder interest gift tax rules apply the gift tax on the entire value of the trust by assigning a zero value to the interest retained by the donor.