Double Taxation Relief for Inheritance Tax

When you own assets overseas and pass away, both the UK and the foreign country may try to charge tax on the same assets. This means you could face Inheritance Tax twice on the same property. Fortunately, relief is available to reduce or eliminate this double charge, either through formal tax treaties or through unilateral relief provisions.

What is double taxation relief?

Double taxation relief prevents your estate from paying Inheritance Tax twice on the same assets. This situation arises when:

• You were domiciled (or deemed domiciled) in the UK when you died
• You owned assets located in another country
• Both the UK and that other country charge tax on those assets

Domicile refers to the country you consider your permanent home. From 6 April 2025, you're treated as having deemed UK domicile if you're a long-term UK resident, even if you don't consider the UK your permanent home.

Double taxation conventions (treaties)

The UK has formal double taxation conventions with several countries specifically for Inheritance Tax. These are bilateral treaties that set out clear rules about which country can tax which assets.

The UK currently has Inheritance Tax treaties with:

• Republic of Ireland (from 2 October 1978)
• South Africa (from 6 May 1979)
• USA (from 11 November 1979)
• Netherlands (from 16 June 1980, amended 3 June 1996)
• Sweden (from 19 June 1981, amended 14 July 1989)
• Switzerland (from 7 March 1995)

Older treaties exist with France, Italy, India and Pakistan from before 1975 (dating back to the Estate Duty era). These operate under different rules and don't include provisions for deemed domicile.

How the treaties work

Under these conventions:

• The country where you were domiciled (or deemed domiciled) at death can tax all your property, wherever it's located
• The other country can only tax specific types of property within its borders, such as immovable property (land and buildings)

If you still face double taxation after applying these rules, the treaties specify which country must give credit for the other country's tax.

When relief is due, you receive a credit for the tax paid overseas against the UK Inheritance Tax due on those same assets. The relief is limited to the actual amount of overseas tax you paid on those assets.

Unilateral relief (when there's no treaty)

If your assets are in a country without a double taxation convention with the UK, you can still claim relief under unilateral relief provisions.

HMRC gives you a credit against your UK Inheritance Tax bill for the tax charged by the other country on assets located there. Important points:

• UK law determines where an asset is located for this purpose
• The credit cannot exceed the UK Inheritance Tax attributable to that asset
• If the foreign tax exceeds the UK tax on that asset, your credit is capped at the UK Inheritance Tax amount

When assets are in multiple countries

You can also get credit where both the UK and another country tax assets that are:

• Located in a third country, or
• Considered to be in the UK under UK law and in the other country under that country's law

In these cases, the credit is calculated using this formula:

A ÷ (A + B) × C

Where:

• A = UK Inheritance Tax
• B = overseas tax
• C = whichever is smaller (A or B)

Worked example

You die on 6 May 2024 with an estate worth £500,000. Your estate includes an apartment in America valued at £35,000, on which American tax of £1,500 was paid.

Step 1: Calculate total UK Inheritance Tax

Estate: £500,000

Less nil-rate band: £325,000

Taxable amount: £175,000

Inheritance Tax at 40%: £70,000

Step 2: Calculate the proportion attributable to the American apartment

Value of asset ÷ total value of estate × IHT

= £35,000 ÷ £500,000 × £70,000

= £4,900

This means £4,900 of UK Inheritance Tax relates to the American apartment.

Step 3: Determine the relief

American tax paid: £1,500

UK tax on the apartment: £4,900

The relief is limited to the lower figure — the £1,500 actually paid to America.

Your estate therefore receives a £1,500 credit against the £70,000 UK Inheritance Tax bill, reducing it to £68,500.

How to claim

To claim double taxation relief, you need to:

• Obtain proof of the foreign tax paid (usually an official receipt or certificate from the overseas tax authority)
• Report the overseas assets and foreign tax paid when completing the Inheritance Tax return
• Calculate the relief due using the appropriate method (treaty or unilateral relief)

The executor or personal representative handling the estate is responsible for making the claim.

Sources

• Inheritance Tax: Double Taxation Relief
• Inheritance Tax Manual: Foreign property: Double Taxation Conventions

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.