With one in six British marriages now involving a spouse not domiciled in the UK, problems involving the tax consequences of domicile are becoming increasingly common.

Most of the press coverage involving domicile and tax has involved Income Tax. However, one of the major issues has for some time been Inheritance Tax (IHT).

Under existing law, when a UK domiciled spouse or civil partner dies, their entire estate can pass to their UK domiciled spouse or civil partner free of IHT. However, if the surviving spouse or civil partner is not UK domiciled, the sum that passes free of IHT is limited, from April 2013, to the amount of the nil rate band.

There is good news for long-term UK residents in that the Inheritance Tax Act 1984 operates to treat a non-UK domiciled individual as being UK domiciled for IHT purposes if he or she has:

  • been UK domiciled in a three-year period prior to a relevant transfer; or
  • lived in the UK for 17 out of 20 years ending with the year of assessment in which the relevant transfer occurs.

In addition, legislation is being introduced in the Finance Bill 2013 to allow non-domiciled persons to elect to be regarded as UK domiciled for IHT purposes. The UK has very generous relief from IHT for some types of investment and for business assets, so this may well be beneficial for some people.


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