Transfers to a non UK domiciled spouse or civil partner

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Transfers to a non UK domiciled spouse or civil partner
  • Spouse exemption for a non UK domiciled individual
  • Election for UK domicile

Spouse exemption for a non UK domiciled individual

Throughout this note, references to spouses include civil partners; the term ‘partner’ means both a member of a married couple and a member of a registered civil partnership.

Transfers between UK domiciled spouses are wholly exempt for the purposes of UK inheritance tax, whether made in lifetime or death. Where the deemed domicile rules in IHTA 1984, s 267 apply, the full spouse exemption also applies.

General planning using the spouse exemption is covered in the Using the spouse exemption guidance note. Domicile is discussed in the Domicile for UK inheritance tax guidance note.

However, where the transfer is by a UK domiciled spouse to a non-UK domiciled one the exemption is capped at an amount equivalent to the nil rate band, currently £325,000. Thus, a UK domiciled spouse is able to transfer up to twice the value of the nil rate band to his non-UK domiciled partner before incurring a tax liability. There is a distinction though between the two allowances. The non-domiciled spouse exemption is a lifetime limit whereas the nil rate band is refreshed every seven years. For lifetime gifts that exceed the spouse exemption, the balance is initially a potentially exempt transfer (PET) which only becomes chargeable if the donor dies within seven years. Example 1 illustrates how this works in practice.

IHTA 1984, s 18(2)

Where the asset is transferred from a non-domiciled spouse to their UK domiciled partner, the full spousal exemption applies, for the simple reason that the assets will now form part of the UK domiciled spouse’s chargeable estate for IHT.

For gifts made before 6 April 2013, the exemption was £55,000 and this can remain relevant for deaths and transfers after 6 April 2013. A gift in 2012 of £200,000 will have been £55,000 spouse exempt and £145,000 PET. If

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