When individuals begin to start their adult lives, many parents enjoy providing a large monetary gift to their children. Gifts can be given for situations, such as a down payment on a home or for the child to begin saving for their own emergency fund. When gifting large monetary amounts, it is important to know the tax implications for the parent and the child receiving the funds.
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Under Internal Revenue Service guidelines, a gift is a transfer of property or money that for less than its full value, and the donor is not paid back fully. Monetary gifts and gifts of property, such as a home or land, qualify as a gift for gift tax standards. However, the IRS has some gifts that are not considered as taxable gifts, including present interest gifts up to £8,450 per year with the right to use or enjoy the gift immediately, charitable gifts, gifts to a spouse or gifts of educational expenses. In addition, gifts of medical expenses paid directly to the provider are not considered taxable. Gifts subject to the gift tax include checks, making a payment owed by someone else, making a gift to a corporation as an individual, loaning £6,500 or more at less than the market rate of interest, cancelling indebtedness and adding a joint tenant to real estate.
Each year, parents have a set amount of income or property that they are allowed to gift to their children without facing tax implications. As of 2010, individuals are allowed to gift up to £8,450 per person on an annual basis without facing a tax penalty. Gifts may be given to an unlimited number of people and will not trigger a tax payment on the gifts unless the amount given totals more than £8,450 annually per person. For married couples, both spouses may gift £8,450 to an individual person, even if they are giving the same person the funds. Throughout a person's lifetime, they are able to give a total of £0.6 million in taxable gifts that exceed the annual tax-free limits.
For gifts that total more than £8,450 per person on an annual basis, the donor is required to submit a gift tax Form 709 to the IRS when filing her taxes. In the majority of cases, the recipient is not responsible for any gift taxes, however the IRS allows for special arrangements between the donor and recipient in which the recipient pays the taxes. Tax rates will vary depending on the amount of the gift and the amount that is above the £8,450 annual exemption. As of 2010, rates begin at 20 per cent for the minimum amount given; amounts exceeding the £0.6 million lifetime limit are taxed at a similar rate to the 45 per cent estate tax rate.
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