Trusts and Inheritance Tax

Using the spouse exemption

Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP
  • 19 Oct 2021 23:13

The following Trusts and Inheritance Tax guidance note Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP provides comprehensive and up to date tax information covering:

  • Using the spouse exemption
  • The amount of the exemption
  • The spouse exemption and lifetime gifts
  • Using the spouse exemption generally
  • The related property rules
  • Using the spouse exemption with trusts
  • Reservation of benefit rules
  • Breakdown of marriage, etc

Using the spouse exemption

Arguably, the most important exemption from IHT is the married couple / civil partner exemption.

There is no IHT to pay on gifts from husband to wife and vice versa, or from one civil partner to the other (referred to collectively in this note as ‘spouses’). The exemption applies to inter-spouse transfers during lifetime and on death, but this guidance note concentrates on lifetime gifts.

See also the Providing for a spouse or civil partner guidance note.

The amount of the exemption

The exemption is unlimited in amount, except on transfers (either during lifetime or on death) from a UK domiciled spouse to a non-UK domiciled spouse. In this case, the spouse exemption is limited to the same amount as the prevailing nil rate band (currently £325,000), although that amount is available in addition to the donor’s available nil rate band. See the Transfers to a non UK domiciled spouse or civil partner guidance note.

The spouse exemption and lifetime gifts

The exemption applies as long as the property transferred becomes either comprised in the estate of the donee spouse, or the donee’s estate is increased.

It follows from this that an outright gift clearly qualifies for the exemption, but a lifetime gift into a life interest trust for a spouse made on or after 22 March 2006 does not attract the exemption. This is because the assets of a lifetime trust no longer belong to the beneficiary’s estate, unless the trust is a bare trust or a disabled person’s trust.

For more information on these, see the Bare trusts ― IHT and the Disabled persons’ i

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