Key facts
- Directly paying wedding suppliers for a daughter's wedding is considered a gift for inheritance tax (IHT) purposes.
- Gifting £15,000 directly to a daughter for her wedding would also be treated as a gift for IHT.
- Individuals can gift up to £3,000 per tax year tax-free using the annual exemption.
- Unused annual exemptions can be carried forward for one year.
- A specific wedding gift exemption allows up to £5,000 per donor to be gifted tax-free.
- Combined exemptions could allow up to £22,000 to be gifted tax-free by a couple.
- Gifts may be IHT-free if the donor survives for seven years after making the gift.
A reader inquired whether paying directly for their daughter's wedding expenses, rather than gifting the money, would impact their inheritance tax (IHT) bill. Marianna Hunt, a personal financial specialist at Fidelity, explained that regardless of whether the funds are transferred directly to the daughter or paid to suppliers on her behalf, HMRC would consider it a gift for IHT purposes.
Hunt highlighted various gifting allowances that can be utilized to mitigate IHT. Each individual can give away up to £3,000 per tax year under the annual exemption. If the previous year's allowance was not fully used, it can be carried forward, potentially allowing for a gift of up to £6,000 per person. Additionally, there is a specific wedding gift exemption that permits up to £5,000 per donor to be gifted tax-free to a child getting married. Between a couple, this could amount to £10,000.
By combining the annual exemption with the wedding gift exemption, a couple could potentially gift up to £22,000 tax-free. However, if both individuals have already utilized their annual exemptions for the current and previous tax years, only the £5,000 wedding exemption per donor would be available. Any amount exceeding these exemptions might still escape IHT if the donor survives for seven years after making the gift, due to the seven-year rule. The expert advised consulting a financial adviser for complex IHT planning.