united-kingdom tax-law gift
Why doesn&#39;t everyone in UK just pay with exempted gifts?
<p>From what I've grasped from the gov.uk website,
 you can gift as much as you like to anyone without paying any tax, as long as you don't die in the next 7 years. So why doesn't everyone just gift money to each other, to avoid paying tax?</p>

<p>For example, I could let 3 lodgers live with me for free (a room each). They could gift me £4000 a year each. I would pay no tax and keep £12,000 a year. If instead they paid me rent, I would pay income tax on anything over £7,500 (thanks to the Rent-a-room scheme).</p>

<p>I'm guessing this is too good to be true, but if so, how would the law argue against this?</p>

<p>In short, because the government is not required to honor your characterization of the transaction.</p>

<p>A gift is something given without receiving anything in exchange. In almost all taxable contexts this is not a plausible argument. A judge would almost surely rule for the government that your money transfer was rent and not a gift, for example. And, if you didn't report the income that was found to be rent and not a gift, on an income tax form, you would be assessed serious penalties and might even be charged with criminal tax evasion, since the sincerity of your gift would be in doubt.</p>

<p>Also, while in the bare example of an informal roommate arrangement, proof of the existence of a lease in the event of a dispute between the parties might not be necessary, usually contractual documents are in place to protect the rights of both parties to a transaction and those would be inconsistent with a gift characterization. For example, if you sell lumber on credit and it was treated as a gift, you couldn't sue someone who failed to pay for their lumber, and if you sold lumber for cash, it would be a clear quid-pro-quo.</p>

<blockquote>
  <p>Why doesn't everyone in UK just pay with exempted gifts?</p>
</blockquote>

<p>Very short answer to complement ohwilleke's one:</p>

<p><strong>Gifts cannot be <em>paid</em> with.</strong></p>

<p>If you are paying with something it is a <em>payment</em>, not a gift.</p>

<p>What you could do (and this is skirting the law) is drawing up a rental agreement that gives them living space for free. And without mentioning the rental agreement at all, they decide to give you a gift at the end of the year.... </p>

<p>You, obviously, have no legal standing to ask for rent. You gave a gift.</p>

<p>If you make an agreement (even verbal) that their gift is in exchange for your gift, you are no longer able to call them gifts since it's an exchange of money for living space.</p>

<p>In short: As soon as you ask for a gift (especially with specific amounts) in exchange for living space you have a rental arrangement and no gifts. The same way as giving a politician a gift in exchange for them making a decision is suddenly a bribe.</p>
