Inheritance tax is possibly the least popular of the main taxes. However, in most cases, no IHT is payable on transfers made to a spouse or civil partner – regardless of whether this takes place during the lifetime of the person making the gift, or via the will following death.

However, this exemption is restricted if the person receiving the gift is not UK-domiciled. There is good reason for this. Non-domiciled individuals are not subject to UK IHT on their worldwide estate, instead it only the value of UK-situs assets that are accountable. In the absence of specific rules, value transferred to a non-dom spouse or civil partner could escape the UK IHT net altogether if that person never becomes UK-domiciled or deemed domiciled.

In order to avoid this, the spouse exemption is restricted to £325,000 in such cases.

However, it is possible to access the unlimited intra-spouse exemption by making an irrevocable (if the individual remains UK resident) election to be treated as UK-domiciled for IHT purposes.

The election can be backdated for up to seven years and can be made at any time during the UK-domiciled spouse’s lifetime. It must be made within two years of death, unless HMRC permits a late election.

The downside is that it immediately brings all of the non-domiciled spouse’s non-UK situs assets within the charge to UK IHT. This may not be an issue if there are no significant assets, or if the individual is likely to become domiciled/deemed domiciled in the UK prior to their death anyway. The election does not affect the domicile status for income tax or CGT purposes, so the remittance basis can still be used.

Once made, the status continues to apply unless the individual becomes non-UK resident for four consecutive years.

For further information, refer to IHTM13040.