In such cases, IHT was due on the value of the assets received, less the nil rate band of £325,000 and an allowance of £55,000. On many occasions this left widows with young children having to sell the family home to fund the tax due.

From April 2013, the additional allowance is being increased to £325,000, so that the total amount that may be passed to a spouse in these circumstances will now be £650,000. Further, the bereaved will now be able to elect to be deemed domiciled, which would remove the anomaly completely. Whilst this removes the immediate tax liability, the election means that the bereaved’s worldwide assets would come within the scope of IHT. As a result, this new election means that planning to exclude a non-domiciled individual’s non-UK assets from IHT needs to be considered much earlier. It will be important to consider this when clients first move to the UK.

[Matthew Clark, 12 April 2013]