IHTM27160 - Foreign property: Double Taxation Conventions: What is Double Taxation Relief?

As well as paying Inheritance Tax in the UK, the taxpayer may find they must pay a similar tax in a foreign country on the same asset on the same event (death or lifetime transfer). To stop the same asset being taxed twice:

• we may allow a credit against Inheritance Tax for tax payable in a foreign country, or
• the Revenue authorities of the foreign country may allow a credit against their tax for the Inheritance Tax paid in the UK.

 If there is a Double Taxation Convention (DTC), sometimes referred to as an agreement or treaty, between the UK and the foreign country, the convention will provide the rules and procedures that must be followed to calculate any relief due in the UK. We have conventions with Republic of Ireland, USA, South Africa, France, Netherlands, Sweden, Switzerland, Italy, India and Pakistan.

Where a double taxation credit has been deducted before we have issued the grant and we have a Double Taxation Convention (DTC) with the foreign country, you must: 

• consider the provisions of the relevant convention 
• and follow the instructions at IHTM27190. 

When the taxpayer or agent asks for double taxation relief after the grant has been issued and tax has been paid: 

• If the relief is due under a DTC you should consider the terms of that convention and ask for the appropriate certificate of tax paid, or the required evidence for the relevant country. (See IHTM27168 to IHTM27178) 

You must not make an interim repayment of tax before we have the evidence we need. If the taxpayer or agent presses for a repayment you should tell them that the collection of tax on the account is always provisional, but once tax has been paid it can only be repaid if it is 'proved to the satisfaction of the Board that there has been an overpayment' (IHTA84/S241 (1)). 

If no DTC exists between the UK and the foreign country, unilateral relief under the provisions of IHTA84/S159 (1) may prevent the same assets being taxed twice (IHTM27185).

Certain foreign taxes, which do not qualify for a credit against IHT, may however be allowed as a deduction against the value of the estate (IHTM28100).

In this guidance we use the term 'foreign country'. In the legislation the expressions are 'territory outside the United Kingdom' and 'overseas territory'. The term 'foreign country' includes the territorial sub-divisions of a country, and 'foreign tax' includes tax paid to the territorial sub-divisions of a country.