Introduction to this document
Election to be treated as domiciled in the UK
Where a married couple or civil partners consist of a UK domiciled individual (UK-dom) and a non-UK domiciled (non-dom) individual, there is a restriction on the amount that any transfers between them will benefit from the spouse exemption for inheritance tax (IHT). An election can be made to be treated as a UK-dom for IHT purposes.
Transfers for non-UK domiciled spouse
Any transfers between two UK spouses are exempt and will not be subject to IHT. Where there is a transfer from a UK-dom to a non-dom, there is a lifetime exemption of £325,000, i.e. the same amount as the nil rate band. If the limit is exceeded, IHT is charged on the excess.
Example
Kim (a UK-dom) is married to Jamal, whose domicile is the UAE. Kim dies suddenly in June 2017, leaving her estate of £1 million to Jamal in full. £325,000 is covered by the spouse exemption, and a further £325,000 is coved by her nil rate band (which is available in full). Assuming no IHT annual exemption is available, the remaining £350,000 will be liable to IHT at 40%.
Election
Since April 2013 it has been possible for a non-dom to make an irrevocable election to be treated as a UK-dom for IHT purposes. An election is effective from any specified date chosen by the elector. However, it can’t be backdated by more than seven years or to a date prior to 6 April 2013.
Death elections
The election can be made during the lifetime of the UK-dom spouse and up to two years after their death (and backdated accordingly). This means that estate planning can be undertaken at a time when the surviving non-dom spouse has a better idea of their intentions for the future.
Effect
An election removes the restriction on the inter-spouse exemption, and brings the couple into line with the treatment for UK-dom couples. As a cautionary note, this means any non-UK assets held by the non-dom will immediately be brought within the UK IHT net, and so a decision needs to be taken with great care.
Once an election is made the only way for its effect to be reversed is for the non-dom to leave the UK and be treated as non-UK resident for four successive tax years.
How do you make the claim?
While there is no standard claim form, you must notify HMRC in writing. A lifetime election can be made at any time during the UK-dom spouse’s lifetime, but can only be backdated for up to seven years. An election following the death of a UK-dom spouse must be made within two years.
Note. If the non-dom spouse is caught by the deemed domicile provisions, an election will not be needed as they will benefit from the unrestricted spouse exemption in any case. With effect from 6 April 2017 a person is deemed to be domiciled in the UK for tax purposes where they have been resident here for 15 or more years out of the previous 20.
Document

06 Mar 2017
