Inheritance tax is not payable on any assets that you leave to your spouse or civil partner in your Will. This is provided you are both domiciled in the UK, and means that you can leave your entire estate to your spouse or civil partner without there being any inheritance tax due on your death.

This spouse exemption also applies to gifts that you make to your spouse or civil partner during your lifetime. Assets can be freely transferred or gifted between spouses and civil partners during their lifetimes without worrying about any inheritance tax implications.

If one of you is not domiciled in the UK, the exemption used to be limited to £55,000 (for transfers made before 6 April 2013, whether the gifts were made in lifetime or on death) but it has now been extended to the tax-free allowance (currently £325,000). Anything over this threshold will be subject to inheritance tax at the usual rate of 40% if one of you is not domiciled in the UK.

For example:

It is possible for a spouse who is not domiciled in the UK to elect to be treated as UK domiciled for inheritance tax purposes. This would enable them to benefit from the full spouse exemption and receive the entire value of their spouse’s or civil partner’s estate free of inheritance tax. If you think this might be relevant to your situation, it is recommended that you obtain specialist advice as it could have other tax implications.

In the above example, if Marie had elected to be treated as UK domiciled for inheritance tax purposes, she could have received the whole of George’s estate free of inheritance tax, making a saving of £190,000. However, this could have implications on how her own estate is dealt with from an inheritance tax perspective - so she would need to have advice before she made any election.

From 13 March 2014, the inheritance tax treatment of spouses was extended to same-sex spouses so they are treated in exactly the same way. Therefore, all references to ‘spouse’ include same-sex spouses.

Gifts to UK political parties are exempt from inheritance tax if, as at the last general election:

Gifts of land to registered housing associations or to registered social landlords are free from inheritance tax. The charity inheritance tax exemption is also available for gifts to housing associations which are charities.

Any gifts made for national purposes are exempt from inheritance tax. The government has produced a list of bodies and institutions that qualify for this exemption. Gifts to institutions that preserve a collection that is of scientific, historic or artistic interest for the public benefit are included. Examples include art galleries and museums such as the National Gallery or British Museum. University libraries are also included. Many such institutions are also charities, so gifts to them would be exempt under that heading too.

Gifts to heritage maintenance funds (trusts that maintain historic buildings or land of scenic, scientific or historic interest) are exempt from inheritance tax. The fund has to be approved by the Treasury and satisfy certain criteria for the exemption to be allowed.

There is an exemption from inheritance tax for serving, or former, members of the armed forces or emergency services who die while on active service or who die later due to injuries sustained during active service.

The exemption for armed forces personnel is usually granted automatically by the Joint Casualty and Compassionate Centre (JCCC) Deceased Estates. However, exemptions for veterans need to be applied for by the executors after the death of the individual. The Ministry of Defence will require access to the individual’s full medical records, and each case will be judged on its merits. The exemption does not apply to any gifts the individual may have made in the seven years before their death.

The exemption for emergency services personnel has now been extended to include all emergency services personnel in the UK who have died on or after 19 March 2014 in the line of duty, or whose death is hastened by an injury that occurs in the line of duty. Humanitarian aid workers responding to emergencies, and police constables and armed service personnel, who die as a result of being attacked due to their status are also eligible for the exemption.

Summary

These inheritance tax exemptions apply both on your death and to gifts made by you during your lifetime. Exempt gifts do not use up your nil rate band (the tax-free allowance). So, if you leave a gift of £50,000 to a heritage maintenance fund, for example, in your Will, your nil rate band will still be available to gift to beneficiaries who are not exempt from inheritance tax.