I4.227 Spouses with different domiciles
Transfers between spouses (or civil partners) where the transferor is UK domiciled but the transferee spouse is not, benefit from a limited spousal exemption.
For transfers on or after 6 April 2013 exempt transfers of up to the nil rate band (currently £325,000) can be made from a UK domiciled transferor to their non-UK domiciled spouse1. The exemption is linked to the nil rate band and will change accordingly.
As to the meaning of domicile, see I9.201.
The limit is before grossing but with a deduction for any amount previously taken into account for the purpose of the exemption (it is lifetime allowance and is not refreshed like the nil rate band).
For transfers before 6 April 2013 (and after 9 March 1982), the limit was £55,0002.
Once the exemption limit has been reached there is the possibility of a transfer to a non-domiciled spouse being a potentially exempt transfer (PET). It should be noted that the spouse exemption is applied first and the potential exemption afterwards, and there is no option in the matter.
HMRC says that, where the limit is exceeded, it will allocate the exemption in the manner most favourable to the spouse3, although the manual fails to give any examples of this favouritism (Example 1 at IHTM11033 is simply following the law that a gift will only be a PET if it is not otherwise exempt — once a PET always a PET).
The spouse exemption may thus be used up and wasted on transfers