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Wedding cash gifts could be taxable

06 May 2008

As the most popular season for weddings approaches, families should be aware that gifts of cash for the happy couple could be taxable.

Tax is one of the last things on people’s minds as they plan the big day, but with wedding costs as high as £30,000, parents and other family members may find themselves paying an unnecessary inheritance tax (IHT) charge if they give cash gifts to the happy couple.

Partner and private client specialist Karen Shakespeare at Shoosmiths said: “It is not uncommon for parents and other family members to give cash to the engaged couple to help pay for the wedding, and it appears common sense to let the couple decide how to spend the cash themselves. However, large cash gifts may exceed the donor’s available tax reliefs, leading to an IHT charge.

“If parents pay for specific wedding costs, such as the catering or the honeymoon, there would not be a problem.”

The amount of money that can be given IHT-free per wedding would easily fall short of being able to cover the average wedding cost.

According to Shakespeare: “Each parent can give £5,000, each grandparent or great grandparent can give £2,500, the bride can give £2,000 to the groom and vice versa, and all other parties can give £1,000. These gifts must be made before the ceremony and will only be exempt from IHT if the ceremony subsequently takes place.

“In addition to the above, there is an annual exemption of £3,000 for gifts made by any person per tax year. There is also a small gift exemption for gifts of up to £250. So wedding guests could give up to £500 to the newly weds as a wedding present and this would be IHT exempt. As wedding presents are given after the wedding ceremony, the £1,000 exemption mentioned above would not apply.”

With the exception of the small gift exemption, any gifts in excess of the limits above could be subject to IHT if the donor dies within seven years of making the gift and has exceeded the IHT nil rate band (currently £312,000).

Unfortunately, the IHT nil rate band has not risen as quickly as house prices, so more people are finding themselves with a potential IHT liability. This makes decisions about cash gifts on marriage, or at any other time, all the more important. The marriage of a child or a grandchild also raises issues of succession planning, including whether existing Wills need to be updated.

For further information please contact:
Name: Karen Shakespeare
Phone: 08700 868445
Email: karen.shakespeare@shoosmiths.co.uk

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Karen Shakespeare

Partner
T: 08700 86 8445
I: +44 (0)1908 48 8445
E: karen.shakespeare@shoosmiths.co.uk