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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Foreign property: Double Taxation Conventions: procedure with non-convention countries: relief under IHTA84/S159 (3) and S159 (4)

Relief is due under IHTA84/S159 (3) where both the UK and another foreign country charge tax on the same property and that property is situated:

  • neither in the United Kingdom nor in the foreign country, or
  • both in the United Kingdom and in the foreign country.

Where relief is due under IHTA84/S159 (3), it is given on a split credit basis and will be less than the foreign tax paid. The amount of the credit is worked out by using the formula

A ÷ (A + B) and then multiplying the result by C

where:

  • A is the amount of Inheritance Tax due
  • B is the amount of the foreign tax
  • C is the smaller of A and B

Example 1

Country X and the UK both tax an item of property which is situated neither in Country X or the UK.

  • Country X charges tax of £40
  • The UK charges IHT of £60

The credit is: 60 ÷ (60 + 40) ×40 = £24

Where tax is imposed on the same property by two or more foreign countries and the property is situated:

  • neither in the United Kingdom nor in any of those foreign countries, or
  • both in the United Kingdom and in each of those foreign countries,

relief is due under IHTA84/S159 (4). The formula, A ÷ (A + B) ( C applies where:

  • A is the amount of Inheritance Tax
  • B is the aggregate amount of the foreign tax imposed in each of the foreign countries
  • C is the aggregate of A and B, less whichever is the largest amount of tax paid (in either the UK or one of the foreign countries).

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Example 2

Each of Country X, Country Y and the UK tax an item of property which is not situated in Country X, Country Y nor the UK.

  • Country X charges £40
  • Country Y charges £20
  • The UK charges IHT of £60

The credit is 60 ÷ (60 + 40 + 20) × (40 + 20) = £30

If relief is due under IHTA84/S159 (3)(a) or IHTA84/S159 (4)(a), IHTA84/S159 (5) must be considered when calculating the foreign tax paid (B in the formulas above). If the foreign country has allowed a credit against its tax for tax paid in another foreign country, please refer to Technical.

Where relief is due under IHTA84/S159 (3)(b) or IHTA84/S159 (4)(b), above, the foreign tax at B is simply the gross amount paid. You do not need to take account of any credit for tax paid in another country.