Can you help me to understand the wedding gift inheritance tax (IHT) exemption with regards to ‘compounding’ various allowances?
I’m aware each parent can give each offspring £5,000, IHT-free, as a wedding gift. But can they also each use the £1,000 allowance as a gift to their future in-law?
So, theoretically, could each parent give a total £6,000 (IHT-free) to the couple? And potentially another £3,000 if they have not used their annual allowance either – or even £6,000 if last year’s allowance hasn’t been used?
Therefore, based on two living parents per party, all with sufficient funds, if no allowances have been used in the past two years by either about-to-be-wed’s parents, are we then looking at £48,000 as a possible tax-free gift to the happy couple from just the parents?
A parent can give away £5,000 free of IHT in consideration of marriage and may give £1,000 to any other person in consideration of marriage. This would include those parties that are not children, and would result in a total gift to both parties of £6,000.
Additionally, each parent can use their annual allowance of £3,000 plus their previous year’s allowance, provided they haven’t been used already. This could feasibly make up a total tax-free gift from the parents to the bride and bridegroom of £24,000 in total and £48,000 if all four parents contributed all of these allowances.
Each tax year you can give away normal gifts out of your income
Further, each tax year, you can also give away normal gifts out of your income, for example, Christmas or birthday presents.
You must be able to maintain your standard of living after making the gift. This value of the tax-free gift is limited by the extent to which you can maintain your standard of living after making the gift.