The UK Government has confirmed it will not increase the threshold for Inheritance Tax (IHT) transfe...
The UK Government has confirmed it will not increase the threshold for Inheritance Tax (IHT) transfers for non-domiciled spouses.
In an official letter to Scottish Life International (SLI), Dawn Primarolo, MP and paymaster general, said the Government would not raise the threshold from £55,000, for inter-spouse transfers where the transfer spouse was UK-domiciled but the transferee spouse was not.
She said IHT would continue to be payable on any amount over £55,000, if the spouse died before the stipulated seven- year period. This system differs from the UK, where transfers between UK-domiciled spouses are IHT exempt.
Gerry Brown, technical manager at SLI, said: "A lot of strategies used by intermediaries are based on spouse exemptions. It is appropriate intermediaries use term assurance policies if they have clients with spouses that are non-domiciled to cover any potential IHT liabilities, which could be triggered if the spouse does not survive in the seven-year period.
"It is likely thousands of couples are impacted by this and as these policies are costly in themselves, it is important to undertake the correct tax planning."
According to Brown, there had been assurances by Primarolo's predecessors that the IHT threshold would be reviewed, but until now it had been unclear whether it was the Government's intention to do this.
The letter obtained by International Investment, said: "Transfers of assets between spouses are entirely exempt from IHT. However, where the donor spouse is domiciled in the UK but the donee spouse is not, the IHT exemption is restricted to £55,000. The purpose of this restriction, which dates back to 1975, is to safeguard the Exchequer from loss of tax through UK capital - which has been transferred with the benefit of an IHT exemption - being taken abroad. It also prevents the use of a non-UK domiciled spouse as an intermediary for the transfer by a UK domiciliary of foreign assets to a third party.
"Generally, increasing the £55,000 figure itself would undermine the anti-avoidance mentioned and could be seen as running counter to our commitment to tackling avoidance and encouraging a fairer tax system."
However, Brown pointed out that since the threshold was introduced in 1975, inflation had risen by 150%.
Dawn Primarolo letter stating changes to the transfer limit between non-domiciled spouses unlikely
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