Transfer of UK house to non dom spouse

Question:

Hi,

I want to transfer a UK house held solely in my name (worth ~£500k) to my wife who is a non dom (born in Australia), although she is resident in the UK, has a UK passport, pays UK income tax and has lived here since 1996. She has not elected to be a UK domicile, and she has no overseas income.

Would there be any CGT/IHT implications of this transfer?

Thanks for any help

Answer:

There won't be any CGT implications given you are married. For CGT purposes this would be an interspouse transfer and as such would be free of tax with your wife holding at your original cost & purchase date. Therefore on a disposal by your wife the gain to date would arise on her. The fact that she is a non UK domiciliary would not impact on this.

In terms of IHT there could be issues. Usually a transfer to a spouse is an exempt transfer for IHT purposes. However where there is a a transfer from a UK domiciled spouse to a non domiciled spouse the exemption is restricted to £55,000. Anything over this would then be a potentially exempt transfer ('PET').

As such if you died within 7 years of the date of the gift (of if you retained any benefit in the gifted property) this would remain within your estate for IHT purposes. Therefore it would be subject to UK IHT along with all your other assets after the offset of the nil rate band.

If you survived for more than 7 years from the date of the transfer (and retained no benefit in the property) the transfer would be exempt from IHT in any case.

The other option would be to argue that your spouse was a UK domiciliary (as she had a UK domicile of choice) and therefore the £55K restriction would not apply. Of course the downside is that she would lose the option of claiming/using the remittance basis at any point in the future. She'd also lose the IHT exemption for her overseas estate (but she would lose that on becoming a deemed UK domiciliary in around 4 years anyway).

We've some good articles on the £55,000 exemption eg: How the £55,000 exemption works including examples

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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