IHTM27181 - Double Taxation Relief: what is the relief?

In addition to paying inheritance tax in the UK, the taxpayer may find they must pay a similar tax in a foreign country on the same property as a result of the same event (death or lifetime transfer). To avoid double taxation of the same property, a credit may allowed against IHT for tax payable in a foreign country, or a credit may be given by the Revenue authorities of a foreign country 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 (IHTM27181) will provide the rules and procedures that must be followed to calculate any relief due here. We have conventions with Republic of Ireland, USA, South Africa, France, Netherlands, Sweden, Switzerland, Italy, India, Pakistan.

If there is no DTC between the UK and the foreign country, double taxation can be avoided by unilateral relief, under the provisions of IHTA84/S159 (1) .

Certain foreign taxes, which do not qualify for a credit against IHT, may however be allowed as a deduction against value (IHTM28101)

You will find that we use the term “foreign country” in these instructions. However, in the legislation the expressions are “territory outside the United Kingdom” and “overseas territory”. It is clear from the legislation that “foreign country” includes the territorial sub-divisions of a country, and therefore that “foreign tax” includes tax paid to such a sub-division.