Chapter: 2 - Inheritance Tax Mitigation: The Basics

The spouse/civil partner exemption

2.2.3

The exemption is unlimited except where the donor is UK domiciled and the donee is or is deemed to be non-UK domiciled, in which case there is the (rather odd) historic limitation to £55,000, on a lifetime basis (IHTA 1984 s18).  The days of this £55,000 limitation in a case where the transferee spouse is EU domiciled may be numbered following a consultation launched by the European Commission in June 2010 (‘Inheritance Tax Hinders Freedom of Movement’).  See 13.2 and, for domicile, 15.3 and 16.4.

As to transfers between spouses/civil partners, it has been traditionally axiomatic that on death (and you never know who is going to go first) each individual should own at least £325,000 (for 2011/12) of chargeable value to pass to a beneficiary other than the survivor.  This can be achieved by careful Will drafting – see Chapter 18.  Otherwise the wastage of the exemption could cost up to £130,000 (40% of the nil-rate band for 2011/12).  However, the advent of the transferable nil-rate band from 9 October 2007 (see 18.4.3) has made this unnecessary – and indeed, in the usual case, perhaps ill-advised.