Wedding Gift List – Presents from the Chancellor!
Despite my optimistic sounding title, I’m afraid to say (depending on your political persuasion) Phillip Hammond will not be attending a wedding near you bearing gifts.
Having recently being at a friend’s wedding, I can say the above with some degree of confidence.
However, as the bride was being given away by her father, I was reminded that the event of a wedding can provide the opportunity for friends, family and even the happy couple themselves to make some tax efficient gifts.
For example, the following can be given to the newlyweds, which would be immediately exempt from Inheritance Tax (IHT) for the donor without the need to wait the usual 7 years:
- £1,000 from anyone
- £2,500 from each Grandparent/Great Grandparents
- £5,000 from each Parent
Furthermore, everyone has a £3,000 annual exemption and can make use of any of the unused exemption from the preceding tax year to make gifts which will be exempt from IHT. This means that on the event of a wedding each parent could potentially reduce the value of their estate by £11,000 and potentially save a 40% future IHT bill on that amount.
I suspect that if I point the above out to my parents when I get married, they won’t be as enthusiastic about this as me!
As the couple exchanged their vows, my mind wandered to the Marriage Allowance (MA). This has been effective from the 2015-16 tax year and works whereby one spouse can transfer 10% of their personal allowance to the other. This is only available to married couples where one partner’s income is less than the personal allowance and the other partner is a basic rate payer.
For the 2016-17 tax year £1,100 can be transferred potentially resulting in a tax saving of £220. It is also possible for couples to backdate a claim to the 2015-16 year if they were eligible for MA and reduce their tax bill by a further £212.
In addition, the whole 10% of the personal allowance can be transferred even if a couple were married part way through the year.
So here’s to the happy couple. But before they jet off on their honeymoon, just a final couple of thoughts….
The IHT exemptions are a useful way for loved ones to contribute towards the ever-spiralling wedding costs, however the MA is unlikely to be much use for couples who are both in full time employment.
Even then, of the 4.2 million couples that were eligible for the relief in the 2015-16 tax year, it was estimated that only 1 million couples made a claim.
I personally would like to see an uptake in the couples claiming the relief and would like to see the rules changed so that allowances can be surrendered to a higher rate tax payer, or even between two basic rate payers who have different income profiles so their tax burden can be reduced.
The pessimist in me thinks these changes won’t happen any time soon so for many married couples the MA may remain an unopened and unusable gift.
Blog written by Kieran SmithTalk to Barnes Roffe today