I am a US national who has been living and working in the UK for five years –
a “non-dom”. I am marrying a fellow non-dom (an Australian national) and we plan to continue living in Britain. He has also been resident in the UK for the past five years. Are there any tax advantages – or disadvantages – in formalising our partnership? And what if I married a Briton instead?
Andrew Tailby-Faulkes, senior private client partner at Ernst & Young, the accountants, says marriage does have some tax advantages.
Transfers of assets from one spouse to the other are free of UK inheritance tax (IHT) and capital gains tax (CGT), for example. This exemption also applies to same-sex civil partnerships.
It is important to note that if you continue to live in the UK, then – once you have been resident in 17 out of any 20 tax years – you will become “deemed domiciled” for the purposes of IHT, even though your foreign domicile for other legal and tax purposes may not have changed.
Unless, and until, you become UK-domiciled or deemed domiciled, broadly, your foreign assets remain outside the scope of IHT.
On death, the rate of IHT levied on chargeable estates is 40 per cent, subject to the nil-rate (tax-free) band for the first £325,000.
Spouses that have the same domicile status enjoy a full exemption from IHT on assets that pass from one to the other during lifetime or on death.
Any nil-rate band that is not used up on the first death is in effect transferred to the survivor.
But there can be disadvantages for couples where one is UK-domiciled for IHT purposes and the other is non-domiciled.
If an individual who is domiciled or deemed domiciled in the UK dies leaving his or her estate to a non-UK domiciled spouse, then the normally unlimited exemption is reduced to £55,000.
However, a non-domiciled or deemed domiciled individual leaving assets to a UK domiciled spouse (such as your potential British suitor) will benefit from the full spousal exemption, though the surviving spouse’s assets will be within the scope of IHT on their death.
A possible disadvantage of marriage for non-doms is the absence of certain opportunities for bringing foreign income or capital gains into the UK tax-efficiently, which may be enjoyed by some unmarried couples.
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