Inheritance Tax: Double Taxation Relief
If both the UK and another country charge Inheritance Tax, you could avoid or reclaim the tax through a double taxation convention.
Double taxation conventions
Double taxation conventions are treaties (agreements) which help prevent you being taxed by 2 countries. This can happen if a person was domiciled in another country when they die. If the country where the person was living charges Inheritance Tax on the same property or gift the UK is taxing, you might be able to avoid or reclaim the tax through a double taxation convention.
The UK has a number of bilateral double tax conventions for taxes on estates, gifts and inheritances.
How double taxation conventions work
For the purpose of the agreement, they allow:
- the country in which the transferor is (or in the case of a death, was) domiciled to tax all property wherever it is
- the other country to tax only specified types of property, such as immovable property, in its territory
If you still suffer double taxation, there are rules for deciding which country gives credit for the other’s tax. Where, exceptionally, the relief given by a double taxation convention would be less than that given by Unilateral Relief they give you the benefit of Unilateral Relief.
Countries the UK has double taxation conventions with
The following double taxation conventions apply to Inheritance Tax.
| Country | Date of entry into force |
|---|---|
| Republic of Ireland | 2 October 1978 |
| South Africa | 6 May 1979 |
| USA | 11 November 1979 |
| Netherlands (amended) |
16 June 1980 3 June 1996 |
| Sweden (amended) |
19 June 1981 14 July 1989 |
| Switzerland | 7 March 1995 |
Treaties with France, Italy, India and Pakistan were in place before 1975 during the Estate Duty era and have different rules to eliminate double taxation.
If there is no double taxation agreement
If a transfer is liable to Inheritance Tax and also to a similar tax imposed by another country with which the UK does not have an agreement, you may be able to get relief under Unilateral Relief provisions.
Unilateral Relief
HMRC gives credit against Inheritance Tax for the tax charged by another country on assets sited in that country. For this purpose, UK law determines the location of the asset. If the tax that is charged on the asset by the other country exceeds Inheritance Tax on that asset, they limit the credit to the amount of Inheritance Tax.
They also give credit where both the UK and another country impose tax on assets that are sited:
- in a third country
- both in the UK under UK law and in the other country under that country’s law
In these cases the credit is a proportion of the tax. The proportionate credit is computed by the formula: A ÷ (A + B) x C
A is the Inheritance Tax, B is the overseas tax and C is whichever of A or B is smaller. If the UK and two or more other countries tax the same asset the above applies but with modifications.
Examples of Unilateral Relief calculations
Example 1
Ann is domiciled in Ruritania, but is also treated as domiciled in the UK. She makes a gift of property sited in Utopia.
| Item | Amount |
|---|---|
| UK Inheritance Tax (A) | £3,000 |
| Ruritanian Inheritance Tax (B) | £1,000 |
| C is the smaller of A and B | £1,000 |
| Credit against UK Inheritance Tax is £3,000 ÷ (£3,000 + £1,000) x £1,000 |
£750 |
| Net UK tax | £2,250 |
Example 2
Tom is domiciled in Utopia but holds shares in a Ruritanian company, which maintains a duplicate share register in the UK. Under UK law they regard the shares as sited in the UK, but Ruritanian law regards them as sited in Ruritania. Tom dies (but his estate is not liable to Utopian tax).
| Item | Amount |
|---|---|
| UK Inheritance Tax (A) | £1,000 |
| Ruritanian Inheritance Tax (B) | £4,000 |
| C is the smaller of A and B | £1,000 |
| Credit against UK Inheritance Tax is £1,000 ÷ (£1,000 + £4,000) x £1,000 |
£200 |
| Net UK tax | £800 |
Double Taxation Relief
Double Taxation Relief is given in accordance with the terms of the relevant double taxation convention. If you have paid tax in an overseas country and the relief is due, they will give you a credit for the tax paid overseas against the Inheritance Tax due in the UK on the same assets on which the overseas tax was paid. The relief will be limited to the actual amount of overseas tax paid on those assets.
Example
Brian died on 6 May 2024, leaving an estate of £500,000. His estate included an apartment in America valued at £35,000 on which American tax of £1,500 was paid.
Calculation of Double Taxation Relief
Work out the Inheritance Tax due on Brian’s estate.
Estate = £500,000
Less threshold = £325,000
Total = £175,000
Inheritance Tax due @ 40% = £70,000
Calculate the proportion of the Inheritance Tax that is attributable to the American apartment using the formula.
Value of asset ÷ total value of the estate x IHT = 35,000 ÷ 500,000 x 70,000 = £4,900 Inheritance Tax on the American apartment.
The American tax actually paid was £1,500, so the relief is limited to the £1,500 actually paid.
Further information
For more information about Double Taxation Conventions read the HMRC Foreign property: Double Taxation Conventions manual.