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I have a friend who is moving from the UK to the US for studies. She intends to transfer her money in the UK (~20K GBP) to the US for personal maintenance. I have a brother who will be starting studies in the UK around the same time and I will be paying his fees and maintenance in GBP from my US income.

I am trying to avoid the service fee on currency exchange for both my friend and I. If I transfer the equivalent of 20K GBP in USD to my friend's bank account in the US and she transfers the money in GBP to my bank account in the UK, will we be subject to gift taxes?

We are both Indian citizens but have been working in the US and the UK respectively.

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There may also be a requirement to complete anti-money-laundering paperwork on a transaction of that size. –  pjc50 Jun 23 at 12:39

1 Answer 1

up vote 2 down vote accepted

Let's define better the situation and then analyze it:

Start with:

Person A (you) : has £20K in the US.
Person B (a friend who is moving from the UK to the US for studies): has £20K in the UK.
Person C (a brother who will be starting studies in the UK): has nothing.

End with:

Person A (you) : has nothing.
Person B (a friend who is moving from the UK to the US for studies): has  £20K in the US.
Person C (a brother who will be starting studies in the UK): £20K in the UK.

Process:

A sends £20K to B in the US.
B sends £20K to C in the UK.

So B has the same amount of money, just in a different bank account, but A and C changed states. A now doesn't have money, and C does, as the result of the transaction between A, B and C.

The gift tax issue I see is the transfer of money from A (you) to C (your brother). If you're a US tax resident then you have $14K exemption from gift tax per person per year. £20K is more than that, so it will be subject to the tax.

The fact that a third person was involved as an intermediary is irrelevant - for the purpose of gift tax there's no distinction between using a bank for transfers or a private party.

Keep in mind that paying tuition directly to the institution on behalf of your brother may help you mitigate your gift tax liability - tuition payment made on behalf of your brother is exempt from gift tax. But it has to be made directly to the institution, it cannot pass through your brother.

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Perfect!!! This solves everything. Thank you so much for your erudite response. I really appreciate it. Thank you again. :) –  user2215884 Jun 23 at 11:32

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