If an individual makes gifts to a relevant person out of income or gains arising after 5 April 2008, anti-avoidance provisions seek to tax the donor as if he has made a remittance of any income or gains included within the amount of the gift the donee subsequently remits to the UK. This applies where the gift is made to a member of the donor’s “immediate family”. For these purposes immediate family is limited to situations where the gift is made to the donor’s spouse, civil partner, or individuals living together as spouses or civil partners, or their children under the age of 18, or grandchildren under the age of 18.
There is the opportunity for a donor to make gifts out of his overseas income and gains to his children, or grandchildren who are over the age of 18. All such gifts should be made from the donor’s offshore account directly into an offshore bank account of the donee. This is an effective way of distributing overseas income or gains which would otherwise be taxable on the donor if he was to remit the funds to the UK. The funds may be used by the donee for any purpose, such as the purchase of a home in the UK, or funding university studies. Provided the donor does not benefit from the gift, then he is not taxable on the sums remitted to the UK by the donee.
The rules in the first paragraph above do not apply to the extent that the gift is made out of income or gains arising before 6 April 2008 for which the relevant person regime does not apply. It is therefore worthwhile reviewing personal offshore funds to ensure that any pre 6 April 2008 income or gains is not inadvertently mixed with income or gains arising after 5 April 2008, if such gifts are anticipated. Any pool of untainted pre-April 2008 income or gains may be gifted to the donor’s spouse or other relevant person without triggering any tax charge provided that the donor does not benefit from the gift.