Inheritance tax changes to benefit mixed domicile spouses and civil partners

Under the previous rule, transfers between an individual and his or her spouse or civil partner were wholly exempt from IHT if both were UK domiciled. If, however, the recipient was non-UK domiciled the exemption was limited to £55k.

For example, if a UK domiciled individual died and left more than £55k to a surviving non-domiciled spouse or civil partner, the deceased's estate had to pay 40 per cent IHT on the excess (although the nil rate band and any other applicable reliefs or exemptions could still be used to reduce the liability). Under the new rules the limit increases to £325k.

Alternatively, non-domiciled spouses or civil partners can elect to be treated as UK domiciled for IHT purposes. However, their entire estate (including non-UK based assets), is then subject to IHT. If they do not make an election, only their UK assets are liable to IHT.

Whether to make an election will depend on factors such as the value of each spouse's or civil partner's estate, where their assets are situated, their ages, and whether they want to delay payment of IHT until the death of the second spouse/civil partner.

The changes only apply for IHT purposes - income tax and capital gains tax liability is unaffected.