The UK inheritance tax regime has traditionally provided that the tax exemption for spouses will not apply if the recipient spouse is not UK domiciled and instead a small threshold applied (GBP£55,000) after which tax of 40% arose. Under the announcements made in the UK Budget 2012 next year UK domiciliaries will be able to give a non-domiciled spouse GBP325,000 free of UK inheritance tax, instead of the current maximum of GBP55,000. The new cap is equal to the IHT nil rate band, to which it will be pegged into the future.
The government also plans to allow non-domiciliaries to elect to be treated as domiciled in the UK for IHT purposes and so claim a full spouse exemption, at the expense of their own assets being subject to IHT on the second death.
This is a welcome change and will allow more opportunities for planning for Irish beneficiaries where one spouse is UK domiciled and the other is, say, Irish domiciled and either or both are resident or ordinarily resident in Ireland (so the Irish CAT regime also applies). If the surviving spouse elects to have the second estate subject to the UK IHT, this will allow a better match forthe Double Taxation Treaty to apply.
