Leaving estate to non dome wife and UK inheritance tax - USERNAME: jim23

Tax Question:

Currently I have net assets of £600k in UK and Spain. I am domiciled and resident in the UK, but my wife and two children are resident and domiciled in Chile. My wife has no assets outside Chile and only minimal assets in Chile.

Having taken professional advice, my will is structured so as to leave about half my assets to my wife and the rest to my children. I was told that on my death, assets passed to my wife will be not be subject to IHT and the potential IHT liability on the half of my assets left to my children will be soaked up by current IHT threshold of £325k.

Is this right? Reading an answer to posting "to transfer to non dom spouse Fulcherp" it seems that there is a £55k inter-spouse exemption for gifts and inheritances to non-dom spouses. Can you confirm which is right?

Suspecting that £55k does apply,is there any scope for tax planning to reduce potential tax liability?

Wife and family will not be UK domicile in the future. But half assets are in the form of a share in a business. If my family carries on with the business after my death, does BPR relief apply even if the recipients are non dom?

I plan to buy a house in Chile and one of the ways of buying the house is in my wife's name.

Would gifting of funds to my wife be subject any immediate tax charge in the UK?

Would the gift not be treated as a PET and therefore, if I survive more than 7 years, not be subject to IHT?

If I live in the house when I am in Chile (about 25% of my time), will the gift be considered a gift with reservation? Probably so, but at least a reduced IHT charge might result.

Answer:

Is this right? Reading an answer to posting "to transfer to non dom spouse Fulcherp" it seems that there is a £55k inter-spouse exemption for gifts and inheritances to non-dom spouses. Can you confirm which is right?

Yes, unfortunately there is a restriction on the interspouse transfer exemption when there is a transfer from a UK domiciled spouse to a non dom spouse. The exemption is restricted to £55K.

Note that if your wife was deemed domiciled the restriction would not apply. However if she's non resident I assume she would not be a deemed domiciliary in any case.

Wife and family will not be UK domicile in the future. But half assets are in the form of a share in a business. If my family carries on with the business after my death, does BPR relief apply even if the recipients are non dom?

Yes, if the assets qualify for BPR then they would be free of IHT in any case, even where the beneficiaries are non doms.

I plan to buy a house in Chile and one of the ways of buying the house is in my wife's name.

Would gifting of funds to my wife be subject any immediate tax charge in the UK?

Would the gift not be treated as a PET and therefore, if I survive more than 7 years, not be subject to IHT?

If you gifted funds to your wife, any amount exceeding the £55K exemption (assuming not otherwise utilised) would be a PET. Therefore if you survived for 7 years this would be excluded from your estate. There would be no immediate charge to IHT.

If I live in the house when I am in Chile (about 25% of my time), will the gift be considered a gift with reservation? Probably so, but at least a reduced IHT charge might result.

It could be classed as a reservation of benefit, but this is not automatic. It is more difficult to argue that the reservation of benefit rules apply to a cash gift (as opposed to an asset transfer).

They would need to argue that there was a reservation of benefit "by associated operations" which is more difficult. However the fact that any transfer in excess of £55K would be a PET could as you state bring the reservation of benefit rules into play.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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