Definition
Spouse exemption is an Inheritance Tax relief that allows married couples and civil partners to pass unlimited assets to each other tax-free during life or on death.
This exemption enables you to protect your spouse financially without depleting your estate through taxation, making it arguably the most valuable Inheritance Tax relief available to married couples.
What Does Spouse Exemption Mean?
Under Section 18 of the Inheritance Tax Act 1984, transfers between spouses and civil partners are exempt from Inheritance Tax. This applies equally to lifetime gifts (transfers made while both are alive) and transfers on death through a will or intestacy. The exemption is unlimited when both spouses are UK-domiciled or, from 6 April 2025, when both are long-term UK residents—meaning they've been UK tax resident for 10 or more of the previous 20 tax years. Civil partners receive exactly the same treatment as married couples since the Civil Partnership Act 2004, so "spouse exemption" covers both marriage and civil partnership.
The exemption operates automatically whenever assets pass between spouses or civil partners. If you leave your entire £1.5 million estate to your spouse in your will, they inherit it all tax-free—no Inheritance Tax return required, no 40% tax bill. Importantly, this doesn't waste your £325,000 nil-rate band; it remains unused and can transfer to your spouse through the transferable nil-rate band mechanism, potentially giving them £650,000 in tax-free allowances when they eventually die. David dies in 2025 leaving an estate worth £800,000. His will leaves everything to his wife Sarah. Because of the spouse exemption, Sarah inherits the full £800,000 with no Inheritance Tax due, even though it exceeds the £325,000 nil-rate band. David's full nil-rate band transfers to Sarah, giving her up to £650,000 in combined tax-free allowances.
The unlimited exemption only applies when both spouses share the same domicile or long-term residence status. If you're UK-domiciled but your spouse is not, the exemption is capped at £325,000 (the nil-rate band amount). Any amount above this faces 40% Inheritance Tax. For example, if Ahmed (UK-domiciled) leaves £800,000 to his wife Leila (non-UK domiciled), only £325,000 passes tax-free. The remaining £475,000 is taxable at 40%, creating a £190,000 tax bill. However, Leila can elect to be treated as UK-domiciled for Inheritance Tax purposes, restoring the unlimited exemption—though this brings her worldwide assets into the UK tax net. From April 2025, the test changes from domicile to long-term UK residence (10+ years as UK tax resident). The spouse exemption only applies to married couples and civil partners—cohabiting couples don't qualify, regardless of relationship length.
Common Questions
"If I leave everything to my husband in my will, will he have to pay Inheritance Tax?" No, your husband will inherit everything tax-free under the spouse exemption, regardless of your estate's value. This applies provided you're both UK-domiciled or long-term UK residents from April 2025. The exemption operates automatically—no tax return or payment required for transfers between spouses.
"Does spouse exemption work if my wife isn't British and we live abroad part of the year?" It depends on domicile status (residence status from April 2025), not nationality or where you live. If you're UK-domiciled but your wife isn't, the exemption is limited to £325,000. She can elect to be treated as UK-domiciled for unlimited exemption, but this brings her worldwide assets into UK Inheritance Tax scope.
"Can I give my house to my spouse now without Inheritance Tax, or does the exemption only apply when I die?" Spouse exemption applies to both lifetime gifts and transfers on death. You can gift your house or any asset of any value to your spouse during your lifetime with zero Inheritance Tax. Unlike gifts to children, which are subject to the 7-year rule, gifts between spouses are immediately and permanently exempt.
Common Misconceptions
Myth: We're married, so our family will never pay Inheritance Tax.
Reality: The spouse exemption only defers Inheritance Tax until the second spouse's death. When your spouse dies and leaves assets to your children, those assets are subject to Inheritance Tax above the available thresholds (typically £325,000-£500,000 depending on circumstances). The exemption postpones tax—it doesn't eliminate it.
Myth: Spouse exemption applies to long-term partners who live together.
Reality: The spouse exemption ONLY applies to legally married couples and registered civil partners. Cohabiting couples—no matter how long they've lived together or whether they have children—don't qualify. If you leave your £600,000 estate to your unmarried partner, they'll face Inheritance Tax on amounts above £325,000, resulting in a £110,000 tax bill.
Related Terms
Understanding spouse exemption connects to these related concepts:
- Inheritance Tax: Spouse exemption is the most significant relief from this 40% tax on estates above £325,000.
- Nil-Rate Band: Assets passing to spouse under exemption don't count against the £325,000 nil-rate band, preserving it for transfer.
- Transferable Nil-Rate Band: Because spouse exemption doesn't use the deceased's nil-rate band, that band can transfer to the surviving spouse, creating up to £650,000 in combined allowances.
- Civil Partner: Civil Partnership Act 2004 extended spouse exemption to civil partners with identical treatment to married couples.
Related Articles
- Estate Planning Fundamentals for Married Couples: Shows how spouse exemption forms the cornerstone of tax-efficient estate planning for married couples.
- Inheritance Tax Planning Strategies: Explores advanced strategies that leverage spouse exemption alongside other reliefs to minimize your family's eventual tax bill.
- Blended Families and Second Marriages: Addresses the tension between using spouse exemption to protect your new spouse and preserving inheritance for children from previous relationships.
- International Couples and UK Inheritance Tax: Essential guidance for couples with non-UK domiciled spouses, covering the £325,000 cap and election options.
Need Help with Your Will?
Understanding spouse exemption is crucial for protecting your partner while planning efficiently for eventual Inheritance Tax on your family's wealth. Your will should reflect both your desire to provide for your spouse and your strategy for minimizing tax when assets eventually pass to your children.
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Legal Disclaimer: This glossary entry provides general information about UK legal terminology and does not constitute legal advice. For advice specific to your situation, consult a qualified solicitor. Domicile and residence status rules are complex. If you or your spouse were born outside the UK, lived abroad, or have non-UK assets, seek specialist advice.