In a memo released last week (which may be viewed here), the EC has asked the UK government to review the IHT treatment of spouses to bring it in line with European law.
The statement said: “The UK legislation provides that transfers between domiciled spouses or civil partners are exempt from inheritance tax.
“However, transfers between domiciled and non-domiciled spouses or civil partners are not exempt from inheritance tax. Furthermore, in the latter case the rules on the nil rate band applicable to subsequent transfers differ and may result globally in a higher taxation. This difference in tax treatment of transfers between domiciled and non-domiciled spouses is of a discriminatory nature and contrary to EU rules (Article 18 TFEU).”
The EC explained that its request takes the form of a “reasoned opinion” – the second step of its infringement procedure – and that if it does not see a “satisfactory reaction” within two months it will refer the matter to the Court of Justice of the European Union.
It is in fact an issue which HM Treasury has earmarked to be addressed, with its most recent tax consultations “tracker”, which was published last Friday, including a plan to release a consultation on it “in autumn 2012”.
Gerry Brown, technical manager at Prudential, said anything which seeks to address and eradicate discrimination has to be a good thing and said that any change, whenever it is actually made, will have a significant impact on IHT planning where one spouse is UK domiciled and the other is not.
