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New Inheritance Tax Rules for Non-UK Domiciled Spouses

View profile for Stephanie Brobbey
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Current Law

Inheritance Tax (“IHT”) charges are determined by an individual’s domicile. Any transfers made between married couples and civil partners on death, are fully exempt from IHT where both spouses/civil partners have UK domicile.

The use of the word “spouse” refers to either a spouse or civil partner for the remainder of this article.

This contrasts with the scenario where one spouse is UK domiciled and leaves his/her estate to the other spouse who is non-UK domiciled, then the spouse exemption from IHT is capped a £55,000.

This means that the remainder of the inheritance (after considering any other exemptions that may apply) is chargeable to IHT at the rate of 40%, subject to the usual deduction of the nil-rate band of £325,000 (the tax free allowance).

Domicile is a common law concept and is not defined in statute for tax purposes. Depending on the circumstances, this concept can be rather complex and open to dispute by HM Revenue & Customs (“HMRC”). Generally speaking, it is the country where an individual intends to settle permanently.

Many would argue that the current law is unfair to spouses with mixed UK and non-UK domicile, especially given the international nature of relationships and that relocating to different parts of the world is now a relatively common scenario.

New Rules

The 2013 Budget has announced that from 6 April 2013, the following changes will be made:

  • The cap of £55,000 will increase to the current nil-rate band of £325,000; and
  • Non-UK domiciled spouses will be given the option to make an election to be treated as UK domiciledfor IHT purposes.

The election will enable non-UK domiciled spouses to receive assets from their UK domiciled spouses on death, free of tax. The disadvantage of making this election is that the worldwide estate of the non-UK domiciled spouse will be taken into consideration for IHT purposes. If no election is made, then only the UK assets of the non-domiciled spouse would be subject to IHT.

If an election is made, this will only be for IHT purposes and will not affect the non-domiciled spouse’s domicile status for remittance basis in respect of income tax or capital gains tax.

How to make an election?

The election must be made in writing to HMRC by the non-domiciled spouse (“the Electing Spouse”) and can be either:

  • A lifetime election (made during the lifetime of both spouses); or
  • A death election (made within 2 years after the death of the UK domiciled spouse, where the death occurs on or after 6 April 2013).

Once an election has been made, it cannot be revoked whilst the Electing Spouse remains resident in the UK. If the Electing Spouse is not resident in the UK for three consecutive tax years from the date of election (for lifetime elections) or from the date of death of the UK domiciled spouse (for death elections), then the election automatically ceases to have effect.


Spouses with mixed UK and non-UK domicile would be sensible to consider whether the non-domiciled spouse should make an election after 6 April 2013 in order to benefit from the full spouse exemption entitled to couples who are both domiciled in the UK.

Unfortunately, making an election may not necessarily reduce the IHT due. Each scenario will need to be assessed on a case by case basis, taking into consideration various factors such as:

  • The aggregate value of both spouse’s estates;
  • The proportion of UK situated assets in those estates;
  • The importance to the couple of deferring payment of IHT until the death of the surviving spouse; and
  • The likelihood of changes occurring to the composition of the couple’s combined estates (e.g. they may have plans to redirect their wealth outside of the UK).

This article was written by Stephanie Brobbey, Solicitor, with assistance from Amantha Seneviratne.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.