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When a Treaty Becomes a Treat: Inheritance Tax and Indian Domiciliaries

Introduction

Almost a year has passed since the abolition of the concept of non-domicile for UK tax purposes and for us advisors, this year has felt like a decade. With the dust settling and our fiscal fatigue beginning to lift, many global families are still wondering how to approach the most emotive tax of them all: UK inheritance tax (IHT). Here is where treaties can become quite the treat.

For many UK resident individuals with Indian roots, one source of potential assistance is the 1956 UK India Estate Duty Treaty (the Treaty). In short, the Treaty can, in certain circumstances, override and effectively disapply the UK’s statutory concept of long-term residence (formerly deemed domicile). The surprising effect of this is that UK residents who would otherwise be long-term resident and exposed to IHT on worldwide assets, are saved by virtue of their Indian domicile status and taken out the the IHT net on on-UK assets.

Some will point out that there is a similar provision under the treaty between the UK and Pakistan but this article focuses on the Treaty and Indian connected individuals.

The Treaty and UK Domestic Law

Now, importantly, although India abolished estate duty in 1985, the Treaty remains in force for IHT purposes. Even more interestingly for tax aficionados like us is that, unlike most of the UK’s estate tax treaties, the Treaty contains a deemed domicile/long-term residence override.

So, let’s recap the UK position:

Under UK tax law, IHT applies to:

• UK-situated assets of all individuals; and
• Worldwide assets of individuals who are UK domiciled or long-term residence/deemed domiciled.

Deemed domicile historically arose after 15 years of UK residence under the 15 out of 20-year rule. Under the post-2025 long-term residence regime, individuals can similarly fall within the worldwide IHT net after being UK resident for 10 out of the previous 20 tax years.

However, the Treaty contains a provision which focuses on domicile as a common law principle and which means, in practice that:

• If an individual is UK resident; but
• Remains Indian domiciled under general law; and
• Has not acquired a UK domicile of choice,

then the Treaty can allocate primary taxing rights over non-UK assets to India for IHT purposes.

Given that India no longer levies estate duty, the effect is that UK IHT should not apply to non-UK assets, even if the individual is deemed domiciled or a long-term UK resident under UK law.

Considering IHT can apply both on death and in other lifetime circumstances including trust structuring, this is quite the fiscal outcome if the conditions line up.

Key Conditions

As lawyers will say ad nauseam, careful analysis is required and this is certainly no less the case with the Treaty and its application.

Broadly, the individual must:

• Be within the personal scope of the Treaty, and so be UK resident at the time of death or other relevant tax events;
• Be Indian domiciled under Indian law;
• Not have acquired a UK domicile of choice from an English law perspective; and
• Be able to evidence continuing intention to return to India where relevant.

Practical Considerations

Accordingly, this is a question of both law and fact. In this case, the factual pattern is key in establishing the legal position in both jurisdictions. Any clients who may find themselves capable of benefitting from the Treaty should consider:

• Long-term intentions and retirement planning;
• Location of family and social ties;
• Property ownership;
• Wills and succession framework;
• The need for a domicile statement backed up by current and historic behaviour.

As with many areas of law but particularly so with the area of domicile, the absence of documentation can be fatal (without wanting to insert a pun needlessly).

HMRC

Anyone seeking to take advantage of the Treaty should be mindful of a possible investigation by HMRC as to their domicile post death. If this cannot be resolved through correspondence or agreement, then the deceased’s estate may have to seek a court order, as ultimately only the court can determine a person’s domicile. The court is likely to order a full trial, where detailed evidence of the deceased’s life will be reviewed and examined so that the court can come to a final conclusion as to whether the deceased acquired a domicile of choice in the UK or maintained their domicile of origin in India.

How We Can Help

Our Private Wealth & Tax team at Quastels is well placed to advise UK resident individuals and families with Indian roots on whether the Treaty can apply in their circumstances. Our advice would typically involve:

• Analysing domicile status under English common law principles;
• Considering and quantifying exposure under both domestic IHT rules and the Treaty;
• Preparing domicile statements and supporting evidence;
• Coordinating cross-border advice with Indian counsel;
• Designing succession and trust structures aligned with the Treaty.

With the UK’s IHT regime now focused on residence, the Treaty remains one of the most impactful and, in the case of many Indian families, an often overlooked tool in estate planning.

To discuss the content of this article, please contact Ben Rosen, Private Wealth & Tax Partner, and Thomas Klemme, Private Wealth Disputes Partner.

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Balcony Repairs in Leasehold Flats

Who is responsible for repairing the surface of my balcony?

Balcony repairs can cause disputes because a balcony can feel like part of the leasehold flat, but it is also part of the buildings external structure. When something fails (water damage, cracked concrete, damaged floor surface), responsibility for attending to the repair will depend on what the lease says.

Start with the lease

Most leases will distinguish responsibility between:

• The landlord/freeholder – usually the structure and exterior of the building (and common parts), often paid for via the service charge.
• The flat owner – usually the internal parts of the flat and balcony surface finishes.

Look for definitions such as “structure and exterior”, “retained parts” or “maintained property.” That wording is key.

Balcony parts: structure and finishes

A balcony has different layers, and the answer often changes depending on what the repairing issue is:

• Concrete slab/structural platform. This is often treated as part of the building’s structure, so commonly the landlord’s responsibility.
• Waterproofing layer. This can be the grey area. If it is part of the building’s external waterproofing (protecting the building), it may be the landlord’s responsibility. If it is more connected to the balcony finish (for example without tiles or decking installed on top), it may fall on the flat owner depending on the lease wording.
• Tiles, decking, coverings (surface finishes). Leases will usually treat such coverings in a similar way to flooring inside the flat. Maintenance of these items will usually fall to the flat owner.

The balcony is excluded from the demise

A lease can give the flat owner simply a right to use the balcony as part of their demise, with the landlord responsible for structural and external parts. Some leases will have hybrid wording where the balcony is excluded from the demise but where an obligation is placed on the flat owner to maintain the surface area.

Remember too, that a flat owner may be liable for damage caused from breaking terms of the lease. For example allowing plant roots or plant pots to damage the water proofing surface.

Why a surveyor can matter

Even where the lease seems clear, a surveyor can confirm what has failed (slab, waterproofing, or surface finish). That factual point often decides which lease clause applies.

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Claims Under the Inheritance (Provision for Family and Dependants) Act 1975

English law is famous for enshrining the principle of testamentary freedom, which means that people can leave their wealth on death to whomever they want. Most people assume that a valid will is final. However, this is not absolute as English law recognises that certain people should not be left without reasonable financial support simply because a will (or the intestacy rules) fails to provide for them.

The Inheritance (Provision for Family and Dependants) Act 1975 (often called “The 1975 Act”) allows eligible individuals to apply to the court for financial provision from as estate where reasonable provision has not been made.

What Is a 1975 Act Claim?

A 1975 Act claim is not a challenge to the validity of a will, which is a separate category of claim explored in the following article: How to Challenge a Will. The will may be perfectly valid and still give rise to a claim under the 1975 Act.

Instead, the Act allows the court to intervene where the outcome of an estate is financially unfair to certain people the law considers deserving of protection.

The court’s focus is on ‘reasonable financial provision’, not equality or moral entitlement. Therefore, merely being disappointed beneficiary is not enough to establish a claim, although many such persons might be able to bring a claim under the Act.

Who Can Make a Claim?

Claims can only be made against estates where the deceased died domiciled in England and Wales.

Only certain categories of people are entitled to bring a claim under the Act, including:

• A spouse or civil partner
• A former spouse or former civil partner (provided they have not remarried and were not excluded by a clean break order)
• A cohabiting partner who lived with the deceased for at least two years immediately before death
• A child of the deceased (including adult children)
• A person treated as a child of the family
• Anyone who was financially maintained by the deceased immediately before death

If you fall outside these categories, then you may not be able to make a claim under the 1975 Act. However, it is always recommended to seek professional advice on your potential standing to make a claim and whether alternative claims such as a will challenge might be suitable.

What Is “Reasonable Financial Provision”?

The crucial question for the court to decide is: has the estate made “reasonable financial provision” for the applicant? However, there are two different standards of reasonable financial provision, which depend on the category of applicant:

• For a spouse of civil partner, the court can consider what would be reasonable in all the circumstances, which would be something akin to a divorce settlement.
• For all other claimants, provision is limited to what is reasonable for their maintenance.

The former is much more generous than the latter and ‘maintenance’ is strictly limited to reasonable:

• housing costs;
• living expenses; and
• basic financial security.

Maintenance does not usually extend to luxury or windfall inheritances, unlike claims made by spouses and civil partners. In particular, where adult children are able to provide for themselves, maintenance claims for reasonable financial provision under the 1975 Act are likely to be weak.

When Might a Claim Arise?

Common situations include:

• A long-term partner or spouse is left nothing under a will
• A minor child is excluded despite financial need
• A dependent is left without housing or income
• An estate passing entirely to distant relatives or charities

More complex situations include wills which establish a life interest trust for the surviving spouse with the remainder passing on their death to children of a previous marriage. These structures are good in theory as they can provide for a surviving spouse whilst keeping wealth within the deceased’s natural family. However, they often encounter problems in practice where:

• relations between different branches of the deceased’s family break down, such as between stepmother and step-children; and/or
• there are insufficient income producing assets to provide the surviving spouse with reasonable financial provision.

The Private Wealth Disputes Team at Quastels is adept at advising clients who feel trapped within post-death trust structures and often obtaining for clients the clean break and lump sum payment that they need to move on with their lives after a significant family bereavement.

Time Limits for Bringing a Claim

The 1975 Act claim must normally be issued within six months of the grant of probate or letters of administration. However, this is not a hard deadline like civil limitation periods, and the court has a wide discretion to allow out of time applications. However, this is far from guaranteed and should not be relied upon.

Given the short window for bringing a claim under the 1975 Act, early legal advice is essential to protecting your potential claim.

What Will the Court Consider When Assessing Claims?

The court takes into account a range of factors, including:

• The claimant’s financial needs and resources
• The size and nature of the estate in dispute
• The needs of other beneficiaries
• The deceased’s obligations and responsibilities
• Any physical or mental disability
• Any other relevant circumstances

The court does not simply rewrite the will but aims at fairness and can be swayed by strong moral claims. Each case turns heavily on its own facts and judges have a wide discretion to make awards.

However, how you present your case can be very important to its outcome and for this reason professional advice should be sought from early on to ensure a strong and consistent case is put forward from the start.

What Can the Court Order?

If a claim succeeds, the court may order:

• Lump sum payments
• Regular maintenance payments
• Transfer or occupation of property
• The sale
• Variation of trusts
• Sale of estate assets

The above notwithstanding, the court will usually be persuaded to order a clean break where relations between family members have broken down, meaning parties can expect to receive significant lump sum payments.

It is worth noting that the 1975 Act does not give the court jurisdiction to alter pensions benefits, although these can and often are taken into account when the court makes an award for reasonable financial provision.

Do Claims Always Go to Court?

1975 Act claims are particularly suited to alternative dispute resolution by way of early settlement negotiations or mediation. The majority of cases settle out of Court. Parties should seek professional advice at an early stage to ensure they understand the likely value of their potential claims, which will allow them to enter into realistic negotiations with the other side.

Quastels specialise in providing strategic advice to clients so that they can maximise their chances to settle early and avoiding the costs and stress of court.

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