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I'm in England.

Let's say my friend has £45,350 salary, and a credit card debt of £5,000. Were I to pay that debt off for them, would that £5,000 from me count as income, increasing their tax bill? Would it count as a gift?

This is a hypothetical. I'm aware charity such as this is generally a bad idea.

  • In USA, it would be taxed. But £ tells me you’re not USA. – WGroleau Mar 24 at 13:14
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    @WGroleau - it most certainly would not, this amount in dollars is well under the $15,000 per year reporting requirement. There is no form to fill out, nothing to worry about. This is in response to your comment regarding US tax code, no idea how they handle this across the pond. – JoeTaxpayer Mar 24 at 14:28
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    @WGroleau I also state I'm in england in the first three words of the question. I'm not sure what you were trying to achieve with your comment - there's no further clarification I could make. – Adam Barnes Mar 24 at 23:23
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There's no gift tax in the UK, so in general this won't be taxable to the recipient.

The only exception is that the UK does have inheritance tax, and that can also apply to gifts given in the seven years before death.

So, if all of these are true:

  • You die within seven years of giving the money
  • The money you gave was above the gift exemptions - in particular there's an annual limit of £3,000 for gifts that don't fall under another exemption
  • Your estate (including non-exempt gifts given in the 7 years before death) is greater than £325,000

Then some tax would be owed on the money you gave.

But by default, that tax would be charged to your estate, not the recipient. It's only if there was no money left in your estate that HMRC could possibly go after people who received money from you before you died to collect the tax.

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It would be considered a gift.
Different countries have different tax rules for gifts, but almost all have a defined limit below gifts are tax free; this limit depends on relationship: spouse/parents/kids/siblings/etc. have typically high limits; unrelated people (friends) have a lower limit.

So depending on your relationship, it might be tax free or partly taxable.

In GB, the annual limit seems to be 3000 pounds: https://www.gov.uk/inheritance-tax/gifts. Anything above that would be taxable (for you, the gift giver, not for him, the gift recipient)

The linked government sire reads:

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year - but only for one year.

It seems the 3K limit is not per person, but from an individual, i.e . I cannot gift that much to multiple people. But the carry forward 1 year might cover you.

  • I did not read the code you linked to. But I imagine, that just like in the US there are ways to legitimately boost this amount. Such as having one spouse join in to the gifting. – JoeTaxpayer Mar 24 at 14:50
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    @JoeTaxpayer Yeah, in America the amount basically doubles if you're married, and doubles if they're married, and those stack. Technically what is happening is Al gives to Martha, Al gives to Mike, Alice gives to Martha and Alice gives to Mike. But IRS doesn't punitively make you jump through a bunch of formalities on that like proving you wrote 4 separate checks each <=$15k, as long as the totals are within limits, good 'nuf. – Harper Mar 24 at 19:46
  • I edited more detail based on your link. No need for me to use your lead to write new answer. You can roll back or edit further. – JoeTaxpayer Mar 24 at 20:52
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    This only appears to relate to inheritance tax - if I don't die after giving it, it appears it's irrelevant. – Adam Barnes Mar 24 at 23:25
  • @AdamBarnes without wanting to be morbid, you are going to die after giving it... – AakashM Mar 26 at 13:32

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