There have been two significant improvements in the IHT position of mixed-domicile couples, providing them with more flexibility to mitigate IHT as regards inter-spousal transfers with effect from 6 April 2013. First, the IHT spouse exemption for transfers from a UK domiciled individual to his non-UK domiciled spouse was increased from £55,000 to £325,000 (i.e the value of the current nil-rate band). The second change allowed individuals domiciled outside the UK, who have a UK domiciled spouse, to make an election to be treated as domiciled in the UK for IHT purposes, so enabling them to benefit from the unlimited IHT spouse exemption. Note that the election is irrevocable and may be made by a non-UK domiciled individual (“the elector”) either at any time during the lifetime of his UK domiciled spouse provided not before 6th April 2013 (a “lifetime election”) or following the UK domiciled spouse’s death (a “death election”). Generally, death elections must be made within two years of the spouse’s death (although HMRC has discretion to extend this period).
Careful consideration needs to be given as to when an election is made since it will have the effect of bringing the elector’s entire estate within the scope of IHT. In view of the opportunity to postpone an election until after the death of the UK domiciled spouse, it may be sensible in many cases to defer any decision until just before the two year deadline for a death election, as any potential benefits should be clearer at that stage. Having said this we have recently advised clients and it was agreed that the elector should make an immediate lifetime election. This was on the basis that the elector had no significant property outside the UK and had made the commitment that even if he survived his UK domiciled spouse he intended to remain living in the UK.