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HMRC internal manual

Inheritance Tax Manual

Finance (No 2) Act 2017 changes: double taxation arrangements

There are provisions for the application of the new measure to double taxation arrangements (IHTM27161). These give the UK taxing rights, irrespective of the terms of the treaty, where either no tax is charged in a non-UK territory on a transfer of value, or there is such a tax and its effective rate is 0%.

Example 1

Mohand is Indian born and has an Indian domicile of origin. His main home is in Mumbai. He owns a £5m residential property in Surrey through a Jersey company all of whose shares he owns. The company has no other assets or liabilities. It has a value of £5m. Mohand dies. The UK/India Double Tax treaty gives taxing rights to India, but no tax is charged. The UK charges Inheritance Tax (IHT) on the full £5m value attributable to the UK property.

Example 2

Nadine is a farmer and is domiciled in Iowa. She is not a UK national. Her £1m house in the Scottish highlands is held via an offshore company. She dies in the USA. The USA has taxing rights but the value of her estate is below the threshold and there is no tax paid in the USA. The UK charges IHT on the full £1m value attributable to the UK property. 

However, if her estate were charged to US Federal Estate Tax then the UK’s charge to IHT is denied by the UK/US Convention. This would also be the case where there was no US tax payable because of a specific relief, such as the special land use valuation for farm assets