Guests to say ‘I do’ to wedding gift tax relief

Question.

I am attending a family wedding next month and I want to understand the tax implications of making a gift to the happy couple.

Answer.

As Pippa Middleton, sister to the Duchess of Cambridge, walked down the aisle recently, marking the start of the wedding season, and as the bride of a multimillionaire hedge fund manager, Pippa has probably spent some time considering her financial position and all married couples should be doing the same

Staying engaged with tax rules has always been important for couples who are planning to get married. For example, a spike in March weddings in the 1950s and 60s can be explained by tax rules at the time- a married man received the full married man’s tax allowance as long as he was married before the end of the tax year.

While the weather rather than tax policy is now the key issue for most couples, and the summer months have now taken over as the most popular time to get married in Northern Ireland, guests should not overlook the tax relief available on their gifts to the bride and groom.

With more and more couples living together before marriage, it is becoming increasingly common for newlyweds to request gifts of cash rather than more traditional gifts such as a kettle or toaster for their new home.

Whatever the gift, all or part of it will be exempt from inheritance tax (IHT) provided the gift is made on or shortly before the date of the wedding or civil partnership ceremony.

The amount of tax relief will vary depending on the relationship between the donor (the person making the gift) and the recipient. Each parent (including step-parents) can give up to £5,000 tax free; grandparents can each give up to £2,500; and any other person (such as relatives and friends) can each give up to £1,000.

For couples who both own properties, there will be capital gains tax (CGT) complications once they are married. The main residence exemption for CGT only applies to one property per married couple, so the bride and groom must decide which property the exemption will be used for going forward and the second property may eventually be taxable if it is sold for a profit. HMRC does allow time to sort out such ‘overlaps’, but it should be noted that an unmarried couple using two houses as ‘homes’ can have one house each, so are much better off.

As this is the season for weddings and the trend for newly weds to request cash gifts, you should gift freely within the limits. All taxpayers able to do so should take advantage of their Annual Inheritance Tax Gift Allowance of £3,000 per taxpayer. We recommend all donors should keep records of gifts given, even those within the allowed allowance, including wedding gifts to help avoid confusion and future HMRC challenge.

And it is important to remember that if the wedding or civil partnership is called off and you still give a gift, it will not be exempt from inheritance tax. If the couple wish to give a gift to each other on their wedding day, it will be completely free from Inheritance Tax (IHT) and Capital Gains Tax (CGT).’

The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.