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HMRC internal manual

Inheritance Tax Manual

Domicile: calculation where the domicile of the survivor at the first death is outside the UK

On the death of a first spouse or civil partner who was domiciled in the UK, exemption for assets passing to the surviving spouse or civil partner will be limited by IHTA84/S18(2) to £55,000 for transfers before 6 April 2013, and the applicable nil-rate band for transfers on or after this date, if the surviving spouse or civil partner was not domiciled or deemed domiciled in the UK. (IHTM11033)

If the entire estate passed to the surviving spouse or civil partner, anything over the S18(2) limit is a chargeable legacy.  Where the net estate is above the nil rate band plus the S18(2) limited exemption there will be no nil rate band to transfer, as illustrated below. 

Example

Susan died on 1 June 2008, domiciled in the UK.  She left an estate worth £450,000 all to her husband Lars who is domiciled in Sweden. 

Unused nil rate band calculation

M = £312,000

VT = £395,000 (Estate of £450,000 less limited spouse exemption of £55,000)

M is not greater than VT, so there is nothing to transfer.

Where the net estate is less than the nil rate band plus the S18(2) limit, there will still be an amount of nil rate band available to transfer.  This example shows how both the amount that the net estate is below the nil rate band, and limited spouse exemption combine to produce the amount of nil rate band available to transfer. 

Example

Charles died on 1 October 2014, domiciled in the UK.  He left an estate worth £520,000 all to his wife Helga who is domiciled in Sweden. 

Unused nil rate band calculation

M = £325,000

VT = £195,000 (Estate of £520,000 less limited spouse exemption of £325,000)

M is greater than VT by £130,000

Transferable nil rate band calculation

E =£130,000

NRBMD = £325,000 so

(130,000 ÷ 325,000) × 100 = 40.0000%

On Helga’s death, the nil rate band on her death would be uprated by 40%.  This approach will be appropriate on the death of the survivor when either

  • they remain domiciled abroad and their UK assets exceed the single nil rate band, or
  • between the first death and their own, they became domiciled or deemed domiciled in the UK. 

However, if Helga elects to be treated as if she is domiciled in the UK (IHTM13040) under the provisions of IHTA84/S267ZA and S267ZB from a date before Charles’s death, the limit on the amount of spouse exemption will not apply and the nil rate band on her death would then be uprated by 100%.