Gifts and legacies between spouses or civil partners are normally free of inheritance tax without limit, but if the giver is a long term UK resident and the recipient is not, the exemption is capped at the nil rate band, currently £325,000, across all such transfers in lifetime and on death. The recipient can remove the cap by electing to be treated as a long term UK resident, at the price of bringing their own worldwide assets into UK inheritance tax.

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When is the spouse exemption limited?

Section 18(1) of the Inheritance Tax Act 1984 (IHTA 1984) exempts a transfer of value to the extent that the property becomes part of the estate of the transferor’s spouse or civil partner. Section 18(2) restricts it where, immediately before the transfer, the transferor is a long term UK resident but the spouse or civil partner is not. In that case the exempt amount cannot exceed the exemption limit at the time of the transfer, less anything already taken into account under the exemption.

Section 18(2A) defines the exemption limit as the upper limit of the nil rate band in Schedule 1. HMRC’s threshold table shows the nil rate band at £325,000 from 6 April 2009 to 5 April 2031, so the limit for the 2026 to 2027 tax year is £325,000.

HMRC’s Inheritance Tax Manual at IHTM47030 confirms the restriction does not apply if both spouses are long term UK residents, if neither is, or if only the recipient is.

What does “long term UK resident” mean?

From 6 April 2025 inheritance tax stopped using domicile and moved to long term UK residence (IHTM11031). Section 6A says an individual is a long term UK resident for a tax year if they were UK resident for at least 10 of the previous 20 tax years. Residence follows the income tax position, so the statutory residence test applies from 2013 to 2014, and HMRC says at IHTM47020 that a split year counts as a full year of residence.

Someone who leaves the UK remains in scope for a tail period. Under section 6A(3) that is between three and ten tax years, depending on how many of the last 20 years they were resident. Special rules in section 6B apply to people under 20.

For transfers before 6 April 2025 the old domicile test still applies. IHTM11033 records that the cap was £55,000 for transfers from 9 March 1982 to 5 April 2013 and has been linked to the nil rate band since 6 April 2013.

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How does the cap work in practice?

IHTM47030 sets out three points that catch people out:

  • The cap is cumulative. It applies to the total of all exempt transfers to a spouse or civil partner, in lifetime and on death, and to all spouses if there has been more than one marriage or civil partnership.
  • It applies to the value before grossing up.
  • Earlier exempt transfers count against it even if they were made at a time when the cap did not apply.

A lifetime gift above the cap is not immediately taxed. HMRC’s examples treat the excess as a potentially exempt transfer, which becomes chargeable only if the giver dies within seven years. On death, the excess over the cap is simply chargeable, after the deceased’s available nil rate band. Where the cap is exceeded HMRC says it will allocate the exemption in the way most favourable to the spouse, taking account of which assets bear the tax and reliefs such as business relief.

What is the election to be treated as a long term UK resident?

Section 267ZC lets a person who is not a long term UK resident elect to be treated as one. There are two routes:

  • Lifetime election. Available if, at any time in the seven years before the election, the person had a spouse or civil partner who was a long term UK resident. HMRC says at IHTM47032 that a lifetime election can be made at any time, and the person need not still be married or UK resident when making it.
  • Death election. Available where the long term UK resident spouse or civil partner has died and was a long term UK resident at some point in the seven years before death. It can be made by the surviving spouse or, if they have also died, by their personal representatives. Section 267ZD(4) requires it within two years of the death, unless HMRC allows longer.

Section 267ZD sets the mechanics. The election is made by notice in writing to HMRC and takes effect from a date chosen in the notice. That date must be after 5 April 2025, within seven years before the election (or before the death, for a death election), and a date on which the couple were married or in a civil partnership and the other spouse was a long term UK resident. IHTM47034 lists what the notice must contain: the name and address of the person electing, their date of birth (and date of death if relevant), the name of the long term UK resident spouse, and the effective date. There is no prescribed form.

What are the consequences of electing?

The election is wide. IHTM47038 explains the electing spouse is treated as a long term UK resident for all inheritance tax purposes from the effective date. That gives full spouse exemption, but it also means:

  • Their own non UK assets come within the charge, so their eventual estate may be larger for UK purposes.
  • Gifts they made after the effective date can become taxable. HMRC’s example is a gift of foreign shares into an offshore trust that was excluded property but becomes an immediately chargeable transfer once the election is backdated.
  • The election cannot be revoked (section 267ZD(7)). It ceases only after the person has been non UK resident for ten successive tax years (section 267ZD(8)).
  • It is ignored for double taxation conventions, which can leave the person exposed to two systems (IHTM47038).

Where backdating creates a transfer of value, section 267ZD(6) gives extra time: the account is due 12 months from the end of the month in which the election is made, and tax and interest run as if the transfer were made on the election date (IHTM47039).

How much difference can the election make?

Illustration only. Daniel has lived in the UK for 30 years and is a long term UK resident. His wife Elena moved to the UK four years ago. Daniel dies in 2026 to 2027 leaving his whole estate of £1.2 million to Elena. He made no lifetime gifts.

  • No election. Spouse exemption is capped at £325,000. Daniel’s nil rate band covers another £325,000. The remaining £550,000 is taxed at 40%, giving £220,000 of tax.
  • Death election by Elena within two years. The whole £1.2 million is spouse exempt and there is no tax on Daniel’s death. In exchange, Elena is treated as a long term UK resident, so her own assets abroad will be within UK inheritance tax on her death or on gifts she makes, until she has been non resident for ten successive tax years.

Whether to elect depends on the value and location of Elena’s own assets and her plans. HMRC stresses at IHTM47038 that the person must consider all the consequences before electing.

What about elections made under the old domicile rules?

Domicile elections under section 267ZA were available before 6 April 2025 and can still be made for periods before that date. IHTM47041 explains the transitional treatment: an election made before 30 October 2024 makes the person a long term UK resident from 6 April 2025 until four successive tax years of non residence, while elections made from 30 October 2024 use a ten year lapse period (section 267ZE).

What mistakes should advisers watch for?

  • Assuming the spouse exemption is unlimited because the couple are married and live together in the UK. The test is the residence history of each spouse.
  • Forgetting that lifetime gifts to the spouse, including ones made years ago, use up the cap.
  • Missing the two year window for a death election, or electing without reviewing the survivor’s foreign assets and gifts.
  • Overlooking other routes, such as redirecting part of the estate by deed of variation or using the residence nil rate band for a home left to children.

Capital gains tax has its own rules for transfers between spouses; see spouse transfers and capital gains.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.