While I agree with you that life is so much simpler under the UK regime of gambling winnings being tax-free, the last part of the above is not quite correct - selling your car to your daughter for less than market value could have implications for inheritance tax, if you were to die within 7 years of doing so. As essentially you are making a gift that reduces the value of your estate.
For other assets, there could also be capital gains tax implications - but vehicles are specifically exempt from this (since the vast majority depreciate, and HMRC don’t want people to be able to claim this as a tax loss to offset other gains).
You can give up to $15k a year to someone (and so a married couple can give up to $30k) without filling out forms. Such gifts are considered part of an estate and the estate only has to pay taxes if your estate exceeds $11.4 million including past reported gifts. (Things are complicated, of course. All sorts of variations and rules.)
Gifts for medical and educational expenses also get a break.
Assessing the value of non-monetary property and when/how changes in value happen is difficult.
E.g., suppose a year ago today (the 11th) someone you know got Stan Lee’s autograph on an item and gives it to you. No big deal, right? But the next day Stan died and it turns out this was the last thing Stan ever signed. Now it’s a big deal. Was it given before or after his death? When did its value suddenly jump? By how much? Etc.
You turn around and sell it. You pay taxes on the gain. Again, what is the basis? There’s the difference in value between signing and giving that’s the gifter’s responsibility. There’s the difference in value after receiving and selling that’s the giftee’s responsibility.
As I understand it, your rich uncle could give you $1 million and you still would not pay taxes on it. But *he *would have to report it and pay taxes on the gift. (In the USA)
In Canada, as I understand, if my rich uncle gave me a million dollars (yeah, in my dreams) no tax involvement. After all, as a private individual, if he has $1M in his bank account to give away - one way or another, he’s already paid taxes on it. Indeed, since tax brackets are progressive, unless I’m already well off, the government probably collected more tax when he earned that income than if it were my income instead.
So unk would probably be motivated to figure out how to pay me that as a business expense. “Here, for $1M in wages, you can take out the garbage and mow the lawn all this year.” But Revenue Canada has heard of this trick - income splitting; if I at the lowest tax bracket pay taxes on $1M that’s a lot less revenue than uncle paying it at the highest tax bracket rate. if they deem the payment for work too far above the reasonable value, and there’s not an arm’s length relationship, they will call it a gift and deem it the giver’s income to be taxed.
I just find it weird that the USA would double-tax something - tax already taxed income - because it`s a gift. How does that work? If junior comes with you to Hawaii business class and you bought the tickets, does he have to declare it? What if you own the car but he drives it all the time? What if you own 5 houses and he lives in one? What if he lives in that apartment over the detached 5-car garage, or the gatehouse on the estate? (Did Kato Kaelin pay imputed rent?) I’m sure there’s a huge body of precedent, but the mind boggles.
Double taxation is common nearly everywhere, as far as I know. For example, all sales taxes.
The reason for taxing gifts is otherwise it would be trivially easy to avoid inheritance tax by gifting all your assets to your next of kin just before you die (OK, not all circumstances of death allow this, but enough do to make it a sizable hit to the tax income of the treasury).
Tax-protestors often point to this to say “you can’t have ‘income’ define the term ‘income’” IANATP but I do agree that the IRS uses this circular definition in order to (try to) make everything income. Hey, you traded a sheep for a cow? The cow is market-valued at $1000 more so you owe taxes on $1000. And guess what, the new sheep-owner will get screwed over too.
There’s a sizable annual exemption per recipient ($14k) and a sizable lifetime exemption ($11.4 million currently, and adjusted for inflation going forward).
So, no, even relatively wealthy people don’t have to worry about declaring tickets to Hawaii or cars that relatives drive. Only absurdly wealthy people have to pay gift taxes, and they pay them for the same reason they pay estate taxes: to prevent transfers of dynastic wealth from generation to generation.
And, yeah, mostly it’s not double taxation. It’s not even as much as the long term capital gains taxes would be on unrealized gains, since basis is reset on inheritance.
It’s not double taxation. The tax applies because there is another transfer. It’s like saying that you shouldn’t pay payroll taxes on your maid’s wages, because the government already taxed the income when you earned it.
You said this: *The ordinary, economic definition of “income” that most people think about – even when discussing taxes – is very different from the taxable definition.
If the two were the same, the Internal Revenue Code would be about 5 pages long, and it would take 10 seconds (at most) to figure your taxes."*
So no, most of us, when we think of income, think of it exactly what the IRS defines it as.
And besides a large chapter on Income, the IRC (I used to own one) contains sections on deductions, credits, payment, fines, penalties, and other taxes.
So, even if we thought of a easy definition of “Income”, still there’d be 90% left of the rest of the IRC to deal with those. I was a Treasury Agent, I kinda know these things.