A recent article in the business pages of this esteemed organ commented that globe-trotting professionals would benefit if they married somebody who is not UK domiciled. This was because HMRC, in a rare act of generosity, is set to increase the inheritance tax (IHT) exemption on gifts to non-domiciled spouses from £55,000 to £325,000.

I suppose this is almost fair comment but only if you think by further enriching a spouse by dying is actually beneficial to you. I might argue that staying alive is rather more beneficial and certainly rather more appealing.

Most of us don't like to contemplate our own death. It is almost certainly true that we are all going to die - although some research suggests that within a relatively short number of years, life expectancy will be increasing at a rate faster than life itself. Many agree that within around 20 years average life expectancy will be increasing aby more than 1 year per year so in theory we will all live forever. I am not sure what state we will be in and how much we will be able to enjoy the additional years but it is an interesting thought. If you believe that then perhaps you have no need to write a will or consider your IHT position – as long as you are sure you will survive to reach this immortal era. I suppose that even then you are not necessarily going to be the one of the lucky ones who have avoided getting hit by a bus or dying prematurely from some other unfortunately accident. So perhaps it is best to get your affairs in order and try and maximize the amount of your hard earned wealth that you leave to your loved ones and minimize the amount which will be taken by the tax man.

UK IHT is charged on the value of a UK domiciled person's worldwide estate at 40%. There is an exemption from tax on the first £325,000. Most UK expatriates, even those who have lived outside the UK for many years, will remain UK domiciled. Domicile is not a statutorily defined concept. You are born with a domicile and can only have one domicile. Domicile is adhesive. It is difficult for anybody with a UK domicile to lose it. The test of domicile is purely one of intent. If a UK person settles in a new country and intends to stay in that country indefinitely he will have legally acquired a new domicile of choice in his new adopted country. The generally perceived wisdom is that in order to acquire a new domicile it is necessary to give up all connection with the UK e.g. sell your UK property, stop voting in UK elections, give up your UK club memberships, close bank accounts in the UK etc. None of that is necessary in law.

If you are UK domiciled, transfers between yourself and your legal spouse are exempt from IHT as long as she is UK domiciled also. The logic here is that HMRC accept that it is right and proper that your spouse receive the maximum amount of your estate so he/she can look after herself during her lifetime. HMRC are not being so generous because on the death of the surviving spouse, the wealth will pass to the next generation and IHT will bite then. However, if the spouse is not domiciled no UK IHT will be payable on her/his death so HMRC don't give that spousal exemption and collect 40% immediately.

The article referred to at the start of this piece is correct that an increase in the spousal exemption between a domiciled and non-domiciled spouse would be welcome but it will almost certainly be possible to do better. It could well be that if the expatriate's estate would be charged with 40% tax if he did or intended to return to the UK, he might well be persuaded that returning was a bad idea and he would resolve to stay in his new country indefinitely. If he did make that decision he would domiciled in the new country and lose his liability to UK IHT. One clear indication of permanence in a new country is marrying a local as this, obviously, clearly means they have permanent social connections with the new country. Other sensible precautions are to make sure, as you would naturally do, that you obtain permanent resident status in the new country (and even citizenship if that is available and possible), purchase a house there, join clubs and generally do anything which a person who intends to stay would naturally want to do.

It used to be the case that you could get a "ruling" from HMRC about domicile. Those rulings are generally not available anymore so the best thing to do now is to get an eminent UK barrister to give you an opinion about your domicile. If it is his opinion that you are not domiciled and you are prepared to swear an affidavit stating that you intend to remain in your new country indefinitely, it is highly unlikely that HMRC would ever challenge that so effectively your UK IHT liability would be lost. UK situated assets, irrespective of who owns them, are still charged to UK IHT on the death of the owner but it is relatively easy to convert UK assets into non-UK assets by, for example, having them owned by an offshore company. The offshore company never dies so will never pay IHT and the asset is converted from the UK situated property into the shares of the offshore company which is not a UK asset. Simples.

If you cannot establish an alternative domicile outside the UK, there are still relatively straight forward steps that can be taken to mitigate UK IHT. One popular plan at the moment involves setting up a Family Investment Company. Assets are transferred to the company which issues shares which carry only votes, shares which carry only the right to income and shares which carry all the rights to capital. The expatriate can keep the voting shares so keeps control over the company and its assets. He can keep the income shares or some of them but give away the capital shares. The gift of the capital shares would be a potentially exempt transfer. This means that as long as he survived the gift by 7 years there would be no UK IHT to pay. He can keep the income shares so that he is sure that he will have money for his retirement in old age.

It is certainly true that the increased spousal exemption is welcome news but expatriates can do a lot better and, with a little planning, eradicate UK IHT altogether. Your family will be very grateful you did. The other strategy is to get a good taxidermist and an electric rocking chair.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.