Anyone that has looked at some of the austere measures that George Osborne, the UK Finance Minister, is proposing in his Autumn Statement could be forgiven for being confused by the title of this article.
Some time ago I wrote an article about the issues that could face UK expats that have non-UK spouses or civil partners (click here). The proposals for the Finance Bill 2013 were released for consultation on 11th December 2012 and held some potential good news for UK expats that are UK domiciled.
Currently, all UK citizens, irrespective of their domicile status, benefit from an IHT (Inheritance Tax) nil-rate band, currently £325,000, meaning no tax is payable on this element of the estate. Transfers of assets between UK spouses and UK civil partners upon the death of one of the couple are generally exempt from IHT.
HMRC (Her Majesty’s Revenue and Customs) state “But where the spouse or civil partner to whom assets are transferred does not have a UK domicile there is a lifetime limit (‘cap’) on the value of assets that can be transferred free of IHT. This cap is intended to address the risk that, following a transfer between spouses or civil partners that would otherwise be exempt, where the recipient is domiciled outside the UK, they could remove assets aboard, and escape any IHT on their subsequent disposal.”
The cap is currently £55,000 – this amount has been fixed since 1982.
1. The cap will be increased to the level of the prevailing exemption limit at the time of the transfer- currently £325,000.
2. Under a new election regime, individuals domiciled other than in the UK and who are married or in a civil partnership will be able to elect to be treated as UK-domiciled for IHT purposes.
What does this mean in practice?
- The increase in the cap will mean that many foreign spouses/civil partners of UK expats will either pay no IHT on the death of the partner or the burden will be reduced for those with larger estates. If the survivor is non-UK domicile then there would be no UK IHT payable on the survivor’s death
- The proposed election regime would allow well-off UK expats to leave considerable estates to foreign spouses/civil partners without any IHT to pay. However, this election will bring the survivor into the IHT net and this would mean that tax would be payable on estates larger than £325,000 upon the survivor’s death that would not be the case in the first example.
Clearly, this opens up the opportunity for UK expats, with foreign spouses/civil partners, to arrange their financial affairs to také best advantage of the new proposals that are due to come into force on 6th April 2013. Specialist legal and tax advice should be sought as the costs of getting this wrong could be substantial.
Whilst many would hestitate to refer to George Osborne as Santa , these proposals might be a reason for some to raise a glass at Christmas.
Christopher Lean is a consultant at Square Mile Financial Services (http://www.squaremilefs.com) and an Associate of the Personal Finance Society ( Chartered Insurance Institute).