News added on 30.08.2013

from HMRC LATEST NEWS

Inheritance tax

Non-domicile spouse election for inheritance tax (IHT)

The IHT-free amount that a UK domiciled individual can transfer to a non-UK domiciled spouse increased in April 2013. But you need to elect to take full advantage of the changes and HMRC has just issued guidance on how to do this.

Prior to April 2013. A transfer of assets between UK domiciled spouses is exempt from IHT. However, prior to April 2013, the amount that a UK domiciled individual could transfer to their non-UK domiciled spouse during their lifetime was limited to £55,000 above the nil rate band. This was to prevent assets from leaving the UK IHT net. Any gifts over this limit were treated as a potentially exempt transfer and would only be exempt from IHT after seven years.

Changing the cap. From 6 April 2013, the IHT-exempt amount that a UK domiciled individual can transfer to their non-UK domiciled spouse has been increased to equal to the nil rate band, i.e. £325,000 for 2013/14.  As a result, a UK domiciled individual can now gift up to £650,000 to a non-UK domiciled spouse or civil partner free of IHT (nil rate band £325,000 plus spouse exemption £325,000). This is still not treating non-domiciled spouses the same as UK domiciled spouses where all inter-spousal transfers are exempt.

Why do you need an election? However, it is also now possible for a non-UK domiciled spouse to elect to be treated as UK domiciled for IHT purposes. This allows for transfers between an otherwise non-domiciled individual and their UK domiciled spouse to be exempt, without limit, for IHT purposes. Without an election, transfers between spouses where one is UK domicile and the other is non-UK domicile are subject to the £325,000 cap.

HMRC guidance. In the August edition of its Trust & Estates newsletter, HMRC has issued guidance on how to make a non-domiciled spouse election. There is no specified format for an election, but it must be made in writing by the person who is not domiciled in the UK and should include:

  • full name and address of the person making the election
  • their date of birth
  • the date the election is to take effect from; and
  • the full name and date of birth of their UK-domiciled spouse.

The election should then be sent to:

Trust & Estates Risk Team (Elections)
Inheritance Tax
Ferrers House
Castle Meadow Road
Nottingham
NG2 1BB 

Making an election will allow transfers between a non-domiciled individual and their UK domiciled spouse to be IHT exempt, without limit. The election needs to be made in writing by the non-domiciled spouse.

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