Non UK Domicile Spouse Change to UK Domicile
Published / Last Updated on 19/10/2020
Domicile is peculiar to UK law and does mean what type of home you have, it is your ‘homeland’ status and whether your wealth is fully chargeable to UK inheritance tax or not.
Domicile of Origin UK
You acquire your domicile status from your father at birth (or mother if father unknown/not around). Think of this as your ‘homeland’. This is your Domicile of Origin.
If you are ‘domicile of origin UK’ then on death your worldwide estate is subject to UK inheritance tax laws.
Non UK Domicile
If you are a foreign national (domicile overseas) but now resident in UK, then only UK assets are subject to UK inheritance tax, worldwide assets are not subject to UK inheritance taxes.
Domicile of Choice UK
You are ‘deemed domicile’ UK if you have been resident in the UK for 15 of the last 20 years. Your status changes to Domicile of Choice UK and on death your worldwide estate is subject to UK inheritance taxes.
UK Domicile Spouses – Spousal Exemption
Firstly, remember that 100% of transfers of wealth between UK domiciled spouses on death are free of inheritance tax on 1st death – this is called the Spousal Exemption and is unlimited. You therefore do not use any of your inheritance tax allowances on 1st death. Unused (brought forward) inheritance tax nil rate band and Unused residence nil rate band are passed to the surviving UK domiciled spouse meaning your inheritance taxes allowances have not been lost and the surviving spouse allowances have effectively doubled up on 2nd death.
Spouse is Non UK Domicile
If you are a married/civil partner with a non-UK domiciled spouse, then if you die, your assets can pass to your non-domiciled spouse but the Spousal Exemption is limited to £325,000 and is not unlimited unlike a UK domiciled spouse. On top of this, you also have your personal nil rate band of £325,000 meaning that you can transfer up to £650,000 on death to your non-UK domiciled spouse without incurring inheritance taxes. If you are worth £650,000 or lower on death, then no inheritance tax is payable, if you are worth more than £650,000 on death then inheritance tax would be payable.
Non UK Domicile Spouse Change to UK Domicile
If you are worth more than £650,000 then your non UK domiciled spouse could elect to become UK Domiciled (Domicile of Choice UK) and therefore would instantly benefit from an unlimited Spousal Exemption. This election can be done today or up to two years after the date of your death. The downside of electing to become UK domiciled early is that all of your spouse's wealth outside the UK would instantly become subject to UK inheritance taxes. If your non-UK domiciled spouse has large amounts of wealth outside the UK then this may not be in their best interests but if your non UK domiciled spouse has little or no wealth outside the UK then it may be beneficial to elect to become UK Domiciled.
