Postby jpcentral » Fri Jun 03, 2016 8:43 am
Gifts are not taxable under Income Tax. They do, however, become PETs (Potentially Exempt Transfers) under Inheritance Tax rules. So, if you gift substantial sums of money to your friend, they may have an implication on your estate if you happen to die within seven years. That possibility may seem remote so you may decide it is not worth bothering about. Presumably the amounts you are sending out are substantially greater than the amounts you are receiving so there could be a pretty substantial Inheritance Tax liability building up. An Inheritance Tax rate of 40% could apply to the whole of the money you send, not just the profit.
HMRC act internationally now so are likely to communicate your version to the tax authorities in your friends country of residence and a tax enquiry launched there too. Whether or not tax would be payable there depends on their laws. If it is the USA, for example, their laws on gambling in most states are pretty strict. Both of your stories would need to agree. There is no point in you putting forward something in the UK which drops your friend in a mess wherever he lives.
If the amounts involved are as large as you say, HMRC will probably be made aware by your bank and are unlikely just to accept an off the cuff answer without verification so an enquiry could be very deep and prolonged.