A thoughtful gesture with tax benefits, how to maximise the wedding gift allowance:

With wedding season at its full peak, many parents and grandparents are considering the perfect gifts for their loved ones on their special day. While dowries may no longer be common practice, many still want to offer a gift to the newlywed couple. This could be something for their home or a contribution to their wedding or civil partnership. Some may even want to provide financial help as they start their new life together.
Gifting money in the UK can be subject to inheritance tax however many are unaware that HMRC provides an additional tax-free allowance for weddings and civil partnerships. This provides not only an opportunity to leave a meaningful gift to your loved one but also for the donor to benefit from tax relief on their estate.

Understanding Inheritance tax
Inheritance tax is a tax imposed on the estate of someone who has passed away, affecting, money and property inherited by it's beneficiaries.
Many chose to gift parts of their estates to loved ones before they pass, to minimise and reduce their estate's inheritance tax liability and retain financial assets within the family. You can gift in the UK up to £250 to as many individuals as you want without incurring an inheritance tax charge, the maximum you can gift an individual tax-free is £3,000 as part of your annual exemption. However many people are unaware that there is also a wedding gift allowance that can be used as an addition to your annual gift allowance of £3,000.

What is the seven-year gift rule:
The seven-year gift rule or also known as 'potentially exempt transfer' (PET) is a provision in UK inheritance tax law that states if you make a gift to someone and survive seven years after making the gift, the gift will be exempt from inheritance tax.
As mentioned, you can gift £3,000 per year in total to one person or split between several people (if those people are also not within any £250 gifts) as part of your gift allowance.

What is the wedding gift allowance?
The wedding gift allowance is an additional allowance to the annual gift allowance, which enables gifts to someone getting married or entering a civil partnership tax free. This is in addition to your annual gift allowance.
The tax-free amounts you can give are:
• Up to £5,000 from a parent
• £2,500 from a grandparent
• £1,000 from anyone else

For the gift to be classified under the wedding gift allowance the gift has to be given before the wedding and not after and the wedding must go ahead. If the wedding for whatever reason does not go ahead, the gift will be subject to inheritance tax.
Combining Wedding Gift Allowance with Annual Gift Allowance
In addition to the wedding gift allowance, individuals can also use the annual gift allowance, which lets you give away £3,000 per year tax-free. These allowances can be combined to maximise tax efficiency. For instance, a parent could give £5,000 for their child's wedding and an additional £3,000 under the annual gift allowance, equating to £8,000 tax-free.
For example, if both parents haven't used their gift allowance for the current or previous tax year of £3,000 per year they could both gift £6,000 to the child under their normal annual gifting allowance but also combined with £5,000 each from both parents under the wedding exemption gift allowance. This would allow a total of £22,000 to be gifted to the child free from Inheritance tax.

Practical ways to implement wedding gift allowance:
The wedding allowance as mentioned can be used alongside of your annual gift allowance and should be part of a broader estate planning strategy. By combining the two allowances under the seven-year gift rule you can help reduce your estates inheritance tax liability whilst being able to give a generous gift to your loved ones. To take advantage of this comprehensive approach it is best to take these practical steps:
1. Plan ahead: by planning your gifts around weddings or civil partnerships, you can take advantage of the additional tax-free allowances
2. Combine Allowances: make sure to utilise you and your partner's annual allowance with your wedding gift allowance to therefore maximise the amount you can give tax-free
3. Document your gifts: Keep records of your gifts and the date they were given to ensure compliance with HMRC.

In summary, Using the wedding gift allowance can be the perfect gift to your loved ones but also is a valuable strategy for reducing inheritance tax liability. By planning carefully and seeking professional advice, you can ensure your estate is passed on to your loved ones with minimal tax impact. For more detailed information, visit HMRC's guidelines on inheritance tax and exemptions. Consider consulting a professional estate planner to help you navigate these complexities and optimise your estate planning strategy.

2 Hinksey Court
Church Way
OX2 GSX

Ridgefield Consulting is an independent firm of chartered accountants, registered with both the ICAEW and ACCA. Based in Oxford, they offered tailored services including self-assessment tax returns, company tax returns, VAT, and R&D tax credits. Their expertise and experience make them well-suited to supporting start-ups and medium-sized businesses across Oxfordshire.

This release was published on openPR.