UK inheritance tax when passing assets to a Polish spouse

Lifetime and on-death transfers between spouses/civil partners who are both UK domiciled are exempt from UK inheritance tax (IHT). However, what happens when one of the parties is not UK domiciled, i.e. Polish?

In such a case, special rules apply whereby the non domiciled spouse/civil partner could receive up to £650,000 (tax year 2017/2018) tax free from their late spouse/civil partner. This would be made made up of the following:

  • £325,000 inter-spouse exemption
  • £325,000 nil rate band

Anything in excess of this would then be subject to UK inheritance tax at 40%.

It should be noted that individuals who are UK domiciled are liable to inheritance tax on worldwide assets, i.e. including those in Poland.

One solution would be for the non-domiciled spouse/civil partner to choose to be treated as UK domiciled for inheritance tax purposes.

The benefit of this course of action would be that they would then be treated in the same was as a domiciled spouse/civil partner. I.e. the transfer would be exempt from IHT, irrespective of amount.

The downside is that on the death of the non-domiciled party, their full estate (including assets outside the UK) would then be liable for UK inheritance tax. In addition, a decision to be treated as UK domiciled for inheritance tax purposes is irrevocable.

[IHT] is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.

– Roy Jenkin

If you feel that you are likely to fall foul of this tax due to having a Polish/non UK domiciled spouse/civil partner, please contact me to discuss mitigation strategies.


Further reading:

Am I UK Domiciled?