HMRC internal manual

Inheritance Tax Manual

IHTM27181 - Foreign property: Double Taxation Conventions: Double Taxation Relief: what is the 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.

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.

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.