**Gift Tax** (noun) — A tax levied on the transfer of property or assets from one person to another during the donor's lifetime, without receiving adequate consideration in return, designed to prevent avoidance of estate taxes through lifetime transfers.
Gift tax is a tax on giving away property or money while you're still alive. In jurisdictions that have it, if you give someone a substantial gift, you might owe tax on that transfer. The tax is paid by the person giving the gift (the donor), not the person receiving it.
Not all gifts are taxed. Most jurisdictions with gift tax have annual exclusion amounts that let you give modest gifts each year without any tax consequences. In the United States, for example, you can give thousands of dollars per person per year without triggering gift tax. Gifts below this threshold don't even need to be reported.
The purpose of gift tax is to prevent people from avoiding estate tax by giving everything away before they die. Without gift tax, wealthy people could simply transfer all their assets to their children before death and avoid estate taxes entirely. Gift tax and estate tax work together as a unified system to tax wealth transfers whether they happen during life or at death.
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Gift tax rules vary dramatically by country. The United States has a federal gift tax with lifetime exemptions measured in millions of dollars. Australia has no gift tax at all—you can give away as much as you want during your lifetime without tax consequences (though other tax implications might arise, such as capital gains tax). The UK doesn't have gift tax per se, but gifts made within seven years of death can be subject to inheritance tax.
In jurisdictions with gift tax, lifetime gifts and estate transfers often share a combined exemption. If you use part of your lifetime exemption by making large gifts while alive, you have less exemption available to shelter your estate from estate tax when you die. This unified approach prevents tax avoidance through strategic timing of transfers.
Even in countries without gift tax, making large lifetime gifts can have tax and legal implications. Gifts might trigger capital gains tax if you're transferring appreciated property. Large gifts made shortly before death might be scrutinized to ensure they weren't made to defraud creditors or deprive dependents of support. Professional advice is important when considering substantial lifetime gifts as part of estate planning.
**Related terms:** [Estate Tax](/dictionary/estate-tax), [Gift](/dictionary/gift), Annual Exclusion
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