13.08.26

Game, set, mismatch: IHT and the spouse exemption

Game, set, mismatch: IHT and the spouse exemption

According to recent statistics published by HMRC, inheritance tax (IHT) liabilities reached £7.03 billion for the first time in the 2023/24 tax year, marking an increase of 5% from the previous tax year.

What is the spouse exemption?

HMRC’s statistics highlight the continuing significance of IHT exemptions. They also show that the spouse exemption was claimed by 5,560 estates with values exceeding the nil rate band in 2023/4. This exemption ensures no IHT is payable on gifts from one spouse/civil partner to the other.

Usually, the spouse exemption is unlimited but, where assets pass from one spouse/civil partner who is an LTR to a spouse/civil partner who is not, the exemption is limited to the amount equal to the nil rate band as at the date of death (currently £325,000). For couples with different UK tax residence histories (and who do have a “mismatch” in their LTR statuses), this limitation is potentially very significant.

Looking ahead

For those affected, Wills and lifetime estate planning should be reviewed to cater for a potential mismatch. All may not be lost as it is possible for recipient spouses and civil partners who are not LTRs to elect in certain circumstances to be treated as LTRs. However, once made, this election remains effective until the individual has been non-UK resident for 10 consecutive tax years. The election is therefore a very important decision and should not be an after-thought.

Obtaining appropriate advice to mitigate your potential IHT exposure remains as important as ever. If you would like to discuss your estate planning with the Private Client team here at Wansbroughs, please do get in touch at wealth@wansbroughs.com.