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Double Taxation Relief while Paying Inheritance Tax in the UK

Double taxation relief while paying inheritance tax was introduced to avoid paying double inheritance tax for assets held by one person in different countries. 

If there was no treaty for double taxation relief between countries, you would have to pay tax on the same asset in the country of residence as well as the country of domicile.

IHT for Double Taxation

The UK has various tax treaties with other nations that guard against double taxation on income, assets, and property.

What does the inheritance tax double taxation relief mean?

The payment of inheritance tax is one of the most crucial tasks that must be completed in relation to the deceased’s estate (money, property, and valuables) when a loved one passes away (IHT).

Aside from the possibility of two nations taxing the same property, tax obligations (particularly IHT) become much more complicated if the deceased had any property abroad.

However, double taxation treaties offer a remedy that could help ease the issue and enable you to avoid or reclaim certain taxes, including IHT, depending on the exact conditions being met.

The relevant treaty of each nation has a list of the double taxation relief provisions. 

For instance, the agreement between the UK and the USA provides that property belonging to a person whose domicile is in the UK and is included in a settlement is exempt from UK tax up to 50% of the value transferred. (Please note that other conditions must be satisfied before this applies.)

How do double taxation agreements work?

Due to double taxation agreements, all of the deceased’s assets, regardless of where they are located in the globe, are subject to taxation in the country where they were last domiciled. 

Only certain categories of property, such as immovable property, may be taxed in the nation where the item is physically located.

Which nations and the UK have double taxation agreements?

The UK has double taxation agreements with many nations worldwide including:

Republic of Ireland (SI 1978/1107)
The Netherlands (SI 1980/706 and SI 1996/730)
South Africa (SI 1979/576)
Sweden (SI 1981/840 and SI 1989/986) 
USA (SI 1979/1454)
Switzerland (SI 1975/426 & SI 1994/3214) 
France (SI 1963/1319)
India (SI 1956/998) 
Italy (SI 1968/304)
Pakistan (SI 1957/1522) 


Wherever the decedent’s residence was, the treaties for these nations (marked above with the treaty reference code) stipulate that country has the right to tax the entire inheritance. Only real estate located in the other nation can be taxed there. Then, relief will be made accessible for any property that is subject to two taxes.

If there is no double taxation treaty

You can be eligible for relief under the Unilateral Relief provisions if a transfer is subject to both Inheritance Tax and a comparable tax imposed by a different nation with which the UK does not have an agreement.

What is Unilateral relief

For the tax levied by another country on assets located in that country, HMRC grants a credit against Inheritance Tax. UK legislation establishes the asset’s location for this purpose. 

They may provide a credit up to the amount of inheritance tax owed on the property. If the other country’s tax on the asset exceeds the amount of inheritance tax on that asset, you may get more credit under certain circumstances.

They also offer credit for locations where taxes are levied on assets by both the UK and another nation, calculable as:

In a third nation that is subject to both UK law and the law of the other country – A portion of the tax is offset by the credit. The formula used to calculate the proportionate credit is A (A + B) x C.

A stands for inheritance tax, B for foreign tax, and C stands for whichever of A or B is lower. This formula applies, with a few variations, if the UK and two or more other nations tax the same asset.

It is significant to remember that

  • If the asset’s location needs to be established, UK law is used.
  • If the property is located in an overseas territory, the credit obtained is restricted to the UK IHT that was applied to it and is equal to the tax levied by the overseas jurisdiction.
  • The credit is determined using the following formula: A/(A+B) x C* if the property is located in a third nation or if it is located in the UK under UK law and in the overseas territory under that territory’s law.

Relief from Double Taxation

The terms of the applicable double taxation convention are followed for granting double taxation relief. They will grant you a credit for the tax you paid abroad against the UK inheritance tax you owe. The amount of the refund will only be as much as the actual overseas tax paid on those assets.

Get more clarity on the double taxation treaties and rules. Visit reputed inheritance tax specialists in the UK.

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