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HMRC internal manual

Inheritance Tax Manual

Foreign property: Double Taxation Conventions: procedure with non-convention countries: introduction

Under IHTA84/S159 we can allow credit for tax paid where there is no double taxation convention. This is called unilateral relief. Because of the terms of IHTA84/S159 (2), (3) and (4) you will need to consider the situs (IHTM27071) of property according to UK law and, possibly, foreign law when allowing a credit for foreign tax. You must raise any questions to establish the situs as soon as it seems likely that a IHTA84/S159 credit will be claimed.

Under IHTA84/S159, credit can be allowed on death and also in respect of lifetime dispositions where some type of gift tax is charged in the foreign country. The basic conditions to be satisfied in connection with a lifetime or death transfer are:

  • that both Inheritance Tax (IHT) and overseas tax must be chargeable by reference to the same event and attributable to the value of the same property, and
  • that the foreign tax is similar in character to IHT.

In cases of doubt, you must ask for advice from Technical.

The amount of the credit allowed under IHTA84/S159 is the Sterling equivalent of the foreign tax paid (converted using the exchange rate on the date of payment) so far as that tax is attributable to the foreign property on which IHT has been paid. Any part of the sum paid to the foreign Revenue authorities representing interest or penalties should be excluded. So should any part of the foreign tax that is attributable to income accruing since the date of the transfer. The relief cannot be more than the amount of Inheritance Tax charged on the particular item of property.

Shares and Assets Valuation (Foreign) will provide the exchange rate.

Before the relief can be finalised, the taxpayer or agent must produce evidence of payment of the foreign tax. This must be in the form of the assessment of foreign tax (or other document showing details of the property charged) and the official receipt.

Once you decide the amount of relief available this should be entered in the ‘reliefs against tax’ box in the appropriate COMPASS screen. If necessary, you must apportion the relief between the instalment and non-instalment option property assessments. (See IHTM31189)

As stated above, the relief cannot exceed the amount of Inheritance Tax (IHT) charged with respect to the particular item of property. For these purposes, the IHT attributable to any asset that is wholly exempt from IHT is nil. Where the item is partly exempt, any IHT charged will be attributed to the chargeable part.

Where Quick Succession Relief (IHTM22041) is allowed, the amount of IHT attributable to the property is the net amount after allowing the relief.