Inheritance Tax implications: making wedding gifts to your loved ones
With the 2024 wedding season approaching, thoughts will be turning to gifts for the happy couple. Cash is often the gift of choice, but such gifts are inside the scope of UK taxation and consideration should be given to the potential Inheritance Tax (IHT) implications.
Generally, any gifts made by an individual (the Donor) to another individual (the Donee) are potentially exempt transfers’ (PETs) for IHT purposes, meaning that they are potentially exempt from IHT, providing that the Donor survives for seven years following making the gift.
Are there any exceptions?
There are special rules for gifts made in consideration of marriage or a civil partnership, which mean that an individual can gift certain amounts completely free from IHT, irrespective of the PET rules.
These amounts are:
- £5,000 to a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to any other person.
Every individual also has an annual exemption of £3,000 available (and potentially the prior tax year exemption if not already used), which can be used in conjunction with the marriage gift exemptions.
Parents wishing to gift money to their child on the occasion of their wedding, therefore, could make a combined cash gift of up to £22,000, which would be completely exempt from IHT.
This is comprised of:
| Parent 1 | Parent 2 | |
| Marriage Allowance | £5,000 | £5,000 |
| Annual exemption (current tax year) | £3,000 | £3,000 |
| Annual exemption (prior tax year) | £3,000 | £3,000 |
| Total | £11,000 | £11,000 |
A further £1,000 could also be gifted by each parent to the child’s spouse / civil partner to be, if desired, bringing the total gift to the couple to £24,000.
Cash gifted in excess of the marriage gift and annual exemptions will fall under the PET rules, and thus a record of such amounts should be kept in case required in the future.
A key point to note is that for the marriage gift exemption to apply, the gift must be made ‘in consideration of marriage’. In practical terms, this means before the marriage takes place, rather than after, unless the gift is fulfilment of a binding promise made before marriage.
Alternatives to cash gifts
If gifts other than of cash are made, there may also be Capital Gains Tax (CGT) implications to consider. A property owned by a parent, for example, and gifted to the newlyweds as a wedding present, will trigger a deemed disposal at market value on which a CGT liability may arise and a 60-day CGT return may need to be filed.
The CGT implications of gifts of other assets will depend on what the asset is. Jewellery and paintings, for example, are within the scope of CGT, whereas cars and assets with a limited useful life are not.
The position is not always clear and we would recommend that advice is obtained before you make any gift to ensure that unintended tax consequences do not arise.
For more information on the issues outlined in this article or to discuss your individual circumstances get in touch with Sue Daye or your usual Crowe contact.
