Tax Free receipts

A few people have contacted me asking about gifted payments. These cases are usually a case of a person making a cash sum to another by way of a gift. Of course if it's a genuine gift there should be no UK tax on the receipt. But in some cases there's an existing trading relationship. This makes it more difficult. This would be classed as a 'voluntary receipt'. A voluntary receipt is one which the payer is under no legal obligation to make. In determining the correct treatment of a voluntary payment received the Revenue will consider whether the sum is a receipt of the trade. There is no clear-cut answer to this. The case law does however provide a number of indicators including:

• voluntary payments or gifts, are not taxable unless they can be attached to a pre-existing source such as a trade
• it is the character of the payment in your hands that determines whether it is taxable, but the payer's purpose in making the payment may be evidence of that character

Voluntary payments that are designed in some way to augment the consideration payable for goods or services whether past, present or future, are taxable. If this applies to you and if there was no agreement in place, and there was no understanding that a payment would be made to you in relation to any services provided it would be very difficult to argue that the receipt was in the nature of a trading receipt (which would have subjected it to income tax). In addition this is strengthened if any person making the payment will not be claiming a tax deduction for this. This would indicate it is a receipt in the nature of a gift. The other way it could be taxable would be to argue that the receipt was a capital receipt which should be subject to capital gains tax. However if there was no agreement in place and you had no beneficial or other interest in any asset sold this is unlikely to apply. Note if the payment was clearly related to any services you provided there is no question it would be taxable.