Inheritance Tax exemption - increase for non-UK domiciled spouses or civil partners

The Finance Bill 2013 will include draft legislation that will increase the amount that a UK domiciled individual can transfer to his or her non-UK domiciled spouse or civil partner without incurring an Inheritance Tax (IHT) liability. The legislation also allows such non-UK domiciled individuals to elect to be treated as deemed UK domiciled for IHT so that they can benefit from an unlimited spouse exemption.

Gifts between spouses or civil partners are usually exempt for IHT. However, where a gift is made by a UK domiciled individual to a non-UK domiciled spouse or civil partner the present limit is £55,000. The limit is due to be raised to the value of the Nil Rate Band (currently £325,000). When in force it will effect transfers made on or after the 6 April 2013.

Domicile is used to determine which legal system is applied to an individual. Liability to UK IHT depends upon your domicile.

Jon Gould, Associate in the Private Client team at DWF comments: "The increase is welcome and will bring our legislation closer in line with European discrimination laws. Those individuals who are caught by this type of situation will benefit as it should help reduce their IHT liability. However, care needs to be taken before deciding whether or not to elect to be domiciled in the UK for IHT purposes. Those individuals with worldwide assets may be best suited to remain non-UK domiciled depending upon their assets and circumstances. The Private Client Team at DWF are experts in IHT planning and matters in relation to domicile and will be able to advice fully in relation to the forthcoming changes."