IHTM47038 - Long-term UK residence: Spousal long-term UK residence elections 鈥� consequences of making an election

The rules for spousal domicile elections听prior to 6 April 2025 can be found at IHTM13040听鈥� IHTM13049.听Transitional provisions apply to existing spousal domicile elections and those made on or after that date and can be found at IHTM47041.听听

When an election is made, (IHTM47034)听the person making the election will be treated as a long-term UK resident听(IHTM47000)听for all Inheritance Tax (IHT) purposes from the date stated听in the election (IHTM47037). Consequently, any transfers between spouses or civil partners made after that date qualify for full spouse or civil partner exemption.听

Whether to make an election and the date it is take effect from will require careful consideration as it could mean that a transfer that did not give rise to a charge at the time听it听was made, proves to be chargeable.听

Once an election is made, it cannot be revoked and will only lapse after 10 consecutive years of non-UK residence.鈥�听

Example听

Frank, who is a long-term听UK resident听transfers property worth 拢1m in 2027听to his spouse, Jessica听who is not a long-term UK resident. Subsequently, in 2029, Jessica听transfers some Spanish听shares to the trustees of an offshore trust. Frank听dies听later听in 2029.听

At the time of Frank鈥檚 transfer, the value transferred is exempt to the extent of听the nil听rate band at the time, currently听拢325,000 and a potentially听exempt transfer (PET) (IHTM04057)听to the extent of 拢675,000. Following his death, the failed PET is chargeable and after deducting the nil-rate band, 拢350,000 is subject to tax.听

Jessica鈥檚 transfer was a transfer of excluded property, IHTA84/S6(1). Following Frank鈥檚 death, Jessica听has the choice of electing听to be treated as long-term UK resident. If she does so, the gift from Frank听in 2027听will become fully exempt as a transfer where both spouses are long-term UK resident.听

However, Jessica听will then be treated as a long-term UK resident听from 2027听for all IHT purposes. This means that her transfer to the trustees is no longer one of excluded property and will be subject to IHT. As a transfer to a trust, it will be immediately听chargeable to tax.听

Jessica听will need to consider all the consequences of making an election. Should she decide to go ahead with the election, the requirements to deliver an account in respect of the transfer and the changes to the due dates for tax and interest are set out at听IHTM47039.听

Such an election does not apply when considering a person鈥檚 long-term UK residence听in connection with:听

  • Any existing double taxation convention听(IHTM27161)听听IHTA84/S267ZF(3) and (4)