One of Jason’s UK bank accounts has a cash balance of £500k. He would like to pass the cash to his children in a US and UK tax efficient manner and wants to give them the gift directly.
For UK tax purposes, a gift can be fully excludable from IHT if the donor survives seven years from the date of the gift. If the donor dies within seven years, the gift remains taxable in their estate. Jason is in good health and expects to live seven years.
For US estate tax purposes, any lifetime gifts will be deducted from the lifetime allowance (currently per person) but it is possible to gift up to the annual allowance (currently $15,000) of your estate, per recipient, each year, without reducing your estate allowance.
Jason could therefore gift up to $15,000 to each of his three children per year, with the gifts remaining outside the scope of US estate tax. Provided he lives seven years from the date of the gift, they will also not be subject to UK IHT. In addition, there is an annual UK gift allowance of £3,000 to each child and potentially if the gifts are considered regular and out of Jason’s income, they could be entirely exempt gifts without the need to survive seven years.
If Jason gifts $15,000 (approx. £11,500) to each of his three children annually, over a 10 year period, he could exclude £345,000 from his taxable estate. If Jason remains with the US gift annual allowance of $15,000, he could save £138,000 in taxes.