If my spouse is not UK domiciled, does that matter for Inheritance Tax?
An individual who is UK domiciled is liable to inheritance tax (IHT) on his worldwide assets if he gives them away or leaves them under his Will. A non-UK domiciled individual is liable to IHT only on certain assets they own in the UK.
Transfers (whether in lifetime or on death) between UK domiciled spouses or civil partners are generally exempt from Inheritance Tax. However, this may not be the case if you, or your spouse, is not UK domiciled.
If you are UK domiciled but your spouse or civil partner is not, then there is a limit on what you can give them without incurring a charge to IHT. You can leave £325,000 free of IHT and a maximum of £55,000 to your non-domiciled spouse free of IHT (i.e. a total of £380,000). This maximum of £55,000 is a cumulative limit, covering all lifetime transfers and assets at death; once this limit is exceeded all transfers will be chargeable to tax subject to various lifetime exemptions as explained in previous newsletters.
There is no limit on the relief available on transfers by a non-UK domiciled spouse to a spouse who is domiciled either inside or outside of the UK.
How do I known where I am domiciled for IHT purposes?
Generally speaking you will be domiciled in the country in which you have made your permanent home. This might be a different from the country in which you are resident or of which you are a national as a person’s domicile is determined by a complex set of rules and various factors will need to be considered. Further, for IHT purposes:
i) An individual will be deemed domiciled in the UK if they have lived here for 17 of the last 20 years.
ii) Expats: if you have been domiciled in the UK at any point in the 3 years preceding the date of a lifetime gift or death you will be treated as domiciled in the UK for Inheritance Tax purposes.
Generally speaking you will be domiciled in the country in which you have made your permanent home. This might be a different from the country in which you are resident or of which you are a national as a person’s domicile is determined by a complex set of rules and various factors will need to be considered. Further, for IHT purposes:
i) An individual will be deemed domiciled in the UK if they have lived here for 17 of the last 20 years.
ii) Expats: if you have been domiciled in the UK at any point in the 3 years preceding the date of a lifetime gift or death you will be treated as domiciled in the UK for Inheritance Tax purposes.
Determining domicile is not an exact science; please contact us for detailed advice on domicile issues and the kind of evidence that will be considered.
