Frequently asked questions

If the UK domiciled client in the previous question were to die within 7 years of the £100,000 gift but by the time of his death his spouse had satisfied the residency conditions so as to be treated as being deemed UK domicile, would the full amount of the gift be covered by the spouse’s exemption thereby avoiding £45,000 being treated as a “failed” PET?

Again, sadly not – the restriction for non-domiciled spouses / RCPsremains even where the recipient later becomes either UK domiciled or deemed UK domicile. Any gifts made whilst the transferee was non-domiciled do not fall to be treated as being exempt simply because he/she becomes UK domiciled or, more likely, deemed UK domicile at some point in the future. It is the domicile status of the recipient at the time the gift is made that determines the subsequent IHT treatment of the gift. The only way such gifts (in excess of a cumulative value of £55,000) can avoid being taxed is for them to be covered by either another exemption (e.g. £250 small gifts exemption, £3,000 annual exemption, normal expenditure out of income, although the latter two exemption may be excluded if the transferor reserves a benefit in the property given), the donor’s available nil rate band or the donor surviving for seven years.

Married couples / RCPs to whom the £55,000 limit applies should be aware that, once the cumulative value of transfers from the UK domiciled transferor to the non-UK domiciled transferee has surpassed this figure, any subsequent transfer may be a gift with reservation (GWR) under Finance Act 1986/s102 (1), (2). In most cases gifts between spouses / RCPs are excluded from IHT under the GWR rules, but only so far as the spouse / RCP exemption applies.

Further details on the spousal exemption as it applies in respect of transfers to a non-UK domiciled spouse / RCP can be found at http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM13031.htm