GIFT TAX

a levy imposed on gratuitous transfers of property, i.e., those made without compensation. Provisions for such taxes are common in national tax systems. In the tax systems of many nations, gift taxes are integrated to some degree with a death tax (q.v.). The relationship stems not only from the fact that gifts and bequests share the quality of gratuity, but also from the practical consideration that gifts are often resorted to as a means of avoiding death taxes. Where the two are more or less integrated they may be thought of as constituting an accessions tax. Like death taxes, gift taxes are of little significance in the generation of revenue. They serve a symbolic function in reminding the parties to a transfer of property that the legal structure within which such transfers are possible and protected is a creature of the state. A more important function, and in some nations the explicit rationale for gift taxes, is to stem the use of gifts as a means of avoiding death taxes. Canada, Sweden, Germany, and France are examples of nations whose tax systems treat all gratuitous transfers alike. By contrast, the United Kingdom has none. In the United States liberal exemptions leave most gifts free of tax, while whose that are taxed are subject to three-quarters of the estate tax rate. An exception is made for gifts made in contemplation of death, or in other words those made to avoid death taxes, but difficulties of proof arise in such cases. Exemptions from the tax are commonly granted for gifts made to charitable, educational, or other qualifying institutions. Such exemptions are expressions of social policy. Similarly, Canadian law exempts all transfers between spouses from gift taxes, although transfers to children are taxed.