Double tax relief for IHT

Produced by Tolley in association with Elizabeth Norton at Russell-Cooke Solicitors

The following Trusts and Inheritance Tax guidance note Produced by Tolley in association with Elizabeth Norton at Russell-Cooke Solicitors provides comprehensive and up to date tax information covering:

  • Double tax relief for IHT
  • Pre-1975 treaties
  • Overriding deemed domicile rules
  • France
  • India
  • Italy
  • Pakistan
  • Post-1975 treaties
  • How to claim
  • Further information

Double tax relief for IHT

Where a double tax treaty has been entered into between the UK and a foreign territory, double tax relief for inheritance tax (IHT) will apply.

Where unilateral relief can also apply, the provision that provides the greatest relief can be claimed. See the Unilateral relief guidance note.

Where a double tax treaty applies it should be considered in detail. Double tax treaties can be divided into those entered into before 1975 and more recent treaties.

Pre-1975 treaties

These include situs codes and have been made with:

  1. France

  2. India

  3. Italy

  4. Pakistan (not including Bangladesh)

They apply only to IHT imposed on death and not for lifetime chargeable transfers or IHT charged on failed potentially exempt transfers (PETs).

The pre-1975 treaties provide exemptions to UK IHT rather than credits against tax. This means that the tax is exempt from being paid, rather than being calculated as due but with a credit allowed for the amount of the foreign tax paid.

Overriding deemed domicile rules

The pre-1975 treaties can, in some circumstances, override the deemed domicile rules contained in IHTA 1984, s 267(2), but not those in the Constitutional Reform and Governance Act 2010, ss 41 and 44, which concern members of parliament and the House of Lords. This applies only in relation to death.

Where a testator would satisfy the deemed domicile rules of IHTA 1984, s 267(2) and dies domiciled in India, Pakistan or France in accordance with the law of those countries, UK IHT will apply only to property situated within the UK or passing under a disposition or devolution regulated by the law of Great Britain.

This provision is not contained in the Italian treaty.

The deemed domicile rules will still be relevant if the deemed domiciled deceased has a non-UK domiciled spouse. In this situation the £325,000 limited spouse exemption will apply rather than the unlimited spouse exemption available where both spouses are non-UK domiciled.

For example, if a testator (T) dies domiciled in India, according to

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