abdcare blog

Married couples & registered civil partners receive the best exceptions from inheritance tax

08.10.2013

The best inheritance tax (IHT) exemption provided by the taxman is the ability for married couples and civil partners to pass their estates between each other tax free, there are also additional benefits:

– Married couples and civil partners are able to transfer on the second death the percentage amount of unused nil rate band relief belonging to the first. Based on current reliefs this means that on the second death the inheritance tax threshold can be as high as £650,000 for the second to die.

– Married couples and civil partners can make Lifetime transfers between themselves free from inheritance tax.

However the same blanket exemptions do not necessarily apply to spouses and civil partners who are not domiciled in the UK. Domicile is a complicated subject. Put simply you are treated as domiciled in the UK, and therefore liable to IHT on all your worldly assets, if you have been permanently resident in the UK for 3 years prior to a relevant transfer, or have been living permanently in the UK for seventeen out of the last 20 years.

If you are married or registered as a civil partner to a person who does not fit this definition then prior to April 5th 2013 you could only transfer £55,000 to them free of inheritance tax. As of 6th April 2013 this allowance has increased to £325,000 and in addition all assets transferred to a non domiciled UK spouse or registered partner are free of IHT if the non domiciled partner elects into UK-domicile treatment for IHT purposes. The election has to be in writing, is irrevocable (but is automatically lost if the non domiciled person is non resident from the UK for more than three consecutive tax years) and means that all of the world wide estate of the electing party is liable to UK IHT.

Election to be treated as a UK-domicile for inheritance tax only affects this tax and not others. Interestingly an electing surviving spouse or registered partner can elect up to two years post death of their partner but only to deaths arising on or after the 6th April 2013.

As you can see, the introduction of UK residence can have significant tax planning advantages but is a complicated issue. If you’d like to know more about inheritance tax planning, domicile issues and protecting your assets in old age please:

– contact our Care Team FREE on 0800 072 86 36 (offices in Devizes, Calne, Chippenham, Royal Wootton Bassett and Marlborough)
– email Wayne Elliott on waynee@awdrys.co.uk.
– come to one of our regular seminars, simply register online.

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