question regarding american tax system and one off payments?

Question

if i were to give my son 225,000.00 GBP who lives in Los Angeles, what tax would he get clobbered for, are there any brackets, as a result of a divorce I have been ordered for him to have his inheritance now! how will it effect the gross/net payment i.e. it must be unearned income so what is the rate over there

Incidentally I live on the Isle of Man, so when I have sold my business, I do not have to pay ant capital gains because it;s like a tax free zone, would that have any bearing on his tax if it comes from a tax free island or doesn,t that make any difference

Incidentally I live on the Isle of Man, so when I have sold my business, I do not have to pay ant capital gains because it;s like a tax free zone, would that have any bearing on his tax if it comes from a tax free island or doesn,t that make any difference

Answer 1

YOU will have to pay US Gift Tax on the amount. It's not taxable to him, normally. There is an exception if the donor is exempt from US taxes and refuses to pay the tax though, and that can get VERY messy for your son.

You could get around that by filing a US Gift Tax return and using your lifetime exclusion in addition to your annual $12,000 exclusion. The lifetime exclusion goes against your Estate Tax exclusion but since you would not be subject to US Estate Tax when you pass (unless you became a US citizen or resident) there would be no further tax consequence for you. And £225k is well below the Estate Tax exclusion amount anyway -- it's currently US $2 million.

Another option would be for you to establish a trust here in the US with your son as beneficiary, with the proceeds to pass to him on your death.

Threre are several CPAs (what we call Chartered Accountants on this side of The Pond) in the London area who specialize in US taxes. They advertise in the US ex-pat press, and the American Embassy can give you a list of US tax experts who have registered with the Embassy.

It'll cost you a few bob to get it right and eliminate the US tax burden for both yourself and your son but it will be money well spent.

Being from the Isle of Man has no tax meaning in the US, only to local or UK authorities at best.

Answer 2

I don't believe he has to pay anything. YOU will have to pay a gift tax for giving him that money, though.