Ask Sindie: A wedding present to woo the taxman

Your money problems solved

Q: Our daughter is about to get married and we understand that we can give her some money as a wedding gift, which would also help reduce the size of our estate for inheritance tax (IHT) purposes.

We're both in our 60s, have a house that has rocketed in value since 1998, and want to keep a lid on the amount taxed after our death. My own parents died recently and we lost a lot of money to the taxman through poor planning.

But our question is, does it make a difference that our daughter is getting married for the second time?

We've only recently become aware that this wedding gift IHT exemption is available, but I can't find the rules anywhere. A letter to my own local tax office yielded nothing more than a pamphlet about income tax allowances.

JL, Slough

A: The rules governing wedding gifts and tax planning have hardly changed in the past 30 years.

And they still offer plenty of opportunity to anyone seeking to curb their liability for IHT calculations. (Following a raising of the threshold on 6 April this year, estates worth more than £275,000 are now taxed at 40 per cent on any sum above this amount.)

It's fairly simple: each parent can give any of their children a financial wedding gift of up to £5,000. This will subsequently be exempt from IHT calculations.

The same rule applies to your son-in-law too.

So, if you were generous and had enough money to spare, you and your husband could actually hand over £20,000 to the lucky couple on their big day, and this would not count as part of your estate.

The taxman's largesse extends further: other family and friends can also give up to £1,000 as a wedding gift, and this will be exempted from their own IHT estates. (Grandparents can contribute up to £2,500 per person as a present.)

Now for some more good news. These rules apply to any wedding ceremony, regardless of the number of times that an individual may have been married. "So there are no restrictions at all," says Mary Hase, a tax director at accountants Smith & Williamson. "[The IHT exemption] applies to each wedding."

There are a couple of small rules to watch out for, however. You have to make the gift on or shortly before the wedding day. And if the marriage is called off and you have given money regardless, it won't be exempted from your estate.

Depending on how much you can afford to hand over, there are other IHT exemptions that could benefit your daughter.

Each year, the Inland Revenue lets every individual pass on a gift of up to £3,000 to any one person - your daughter, in this case - without it being counted as part of an estate.

Don't forget that, if you live for seven years after making a gift of any size (in other words, it could be more than £5,000), it won't count towards the size of your estate at all.

Q: Three student friends and I have secured fantastic summer jobs earning nearly £10 an hour at a hospitality company. But all of us have been hammered in our first payslips by huge tax payments.

One of the managers says we have to pay tax like everybody else, but we were told by campus advisers that we would be exempt.

Who's right? If we were to take home the untaxed sum each month, it would make a enormous difference to our finances, and might help pay down some of our debts.

RR, Manchester

A: Every individual has their own personal income tax allowance (worth £4,895 in this tax year for anyone up to the age of 65), regardless of their age or status.

So long as you don't earn more than this - and that's unlikely if you're only working during the summer - you'll have no income tax liability.

The problem in your case is that the Inland Revenue has no idea of your tax status, so it has levied an "emergency code" at 22 per cent.

A far-sighted employer could have given you a special tax form P38(S). Once completed and returned to the Revenue, this would have exempted you from paying tax from day one. Unfortunately, this hasn't happened and you'll now have to reclaim the tax.

You're not alone, though - your experience is all too common every summer. Few businesses have the resources to deal efficiently with the various tax demands.

To claim back the tax, you'll need to fill in a P46 form (available from your local tax office or employer) and hand it to the company's payroll team as soon as possible.

Assuming you have no other income, the taxman will then make the necessary adjustment and include a refund in your next payslip.

Remember, however, that although you won't be liable for income tax, you will have to pay national insurance contributions (NICs) since you'll be earning more than £94 a week.

Don't forget to get a P45 from your employer when you leave the job, in case you need to show the taxman your total earnings for the year.

If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.