Your domicile status could have an impact on two areas of Will drafting and inheritance tax planning:
Under normal circumstances, any assets transferring to one’s spouse are fully exempt from UK IHT, but in cases where the surviving spouse has a foreign domicile, the exempt amount is only £325,000. (This lifetime transfer – not just transfer on death – was increased from £55,000 in the Finance Bill 2013 receiving Royal Assent on 17/07/2013). Additionally, they have a “Nil Band Allowance” of £325,000 (for 2023/24). Hence any transfers over £650,000 will then be taxed at 40%. In order to appreciate the significance of this, it is important to understand what is meant by domicile. Domicile is a very complex concept in law but essentially there are four forms of domicile acknowledged in the UK: domiciles of origin, dependency, choice and also that of deemed domicile. A further and more detailed discussion of domicile can be found in our Briefing Note “Detailed Discussion of Domicile”.
For a more detailed discussion on domicile and its impact on inheritance tax together with a worked example see our Briefing Note “Domicile & IHT“.