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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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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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How to Challenge a Will?

If you believe you have unfairly been left out of a Will or what you have received is below expectations, then the good news is there are multiple ways that a Will can be challenged.

The main ways are:

1. challenging the validity of a Will; and
2. claims for ‘reasonable financial’ provision under The Inheritance (Provision for Family and Dependants) Act 1975 (often called “the 1975 Act“).

This article will examine Will validity claims, whilst a separate article examines claims under the 1975 Act: Claims Under the Inheritance (Provision for Family and Dependants) Act 1975.

How to Challenge the Validity of a Will

If you are considering contesting a Will, it’s important to understand the legal grounds on which a challenge can be made. This article summarises the five main claims by which a Will can be invalidated:

1. Lack of due execution
2. Lack of testamentary capacity
3. Lack of knowledge and approval
4. Undue influence
5. Fraudulent calumny

We also outline what happens if a Will is invalidated and how our team at Quastels LLP can help you navigate this process.

Protecting Your Position

If you are seriously considering a Will validity challenge, then as a first step you should consider entering a caveat at the Probate Registry. For more information on caveats, please see our related article: Probates and Caveats.

1. Lack of Due Execution

One of the first things we advise clients to check is whether the Will was executed correctly. Under the Wills Act 1837, there are strict formal requirements for a Will to be valid. These include rules about how the Will must be signed and witnessed.

If any of these formalities were not followed, the Will is invalid–regardless of whether it reflects the testator’s true intentions. In some cases, this can be a relatively straightforward way to challenge a Will, even if it is legally sound in every other respect.

2. Testamentary Capacity

Lack of testamentary capacity us one of the most common ways to challenge a Will. With people living longer and the concomitant rise of degenerative diseases such as Alzheimer’s and Dementia, there are an increasing number of old and vulnerable people making wills without the requisite capacity.

The legal test for testamentary capacity remains as set out in the 19th century case, Banks v Goodfellow (1869–70) LR 5 QB 549. There are four limbs to the test, which require that the person making the Will must:

1. understand that s/he is making a Will and what that means;
2. have a good (although not necessarily perfect) understanding of the property and assets that s/he is disposing of;
3. s/he should also be aware of the people who s/he ought to consider in his or her Will, even if to explain why s/he is not benefitting them; and
4. be of sound mind and in possession of his or her faculties of reason.

Additional points to note regarding the Banks v Goodfellow test and incapacity claims include:

• Presumption of capacity: the law assumes a person’s capacity unless there is evidence to the contrary. If sufficient doubt it raised, the burden shifts to those defending the validity of the Will.
• Capacity is relative: the degree of capacity required by the Will maker varies depending on the nature and complexity of the estate or the gift being made. This is to say, the level of capacity required to make a gift of £1,000 will be lower than that of a gift of £1,000,000.
• Testamentary Freedom: it is important to stress that English law allows people the freedom to dispose of their assets as they wish. Therefore, it is important to bear in mind that a Will maker may have motives which are capricious, frivolous, mean or even bad. A Will which is unfair or unkind is not a reason for its invalidity.

To assess a claim, the following evidence is usually required:

1. The deceased’s medical records.
2. The deceased’s Will file, where the will was drafted by a professional.
3. Witness evidence from doctors and those in close contact with the deceased around the time the will was prepared.
4. An expert report by a suitably qualified doctor to review all the evidence and give a retrospective medical opinion on the deceased person’s likely capacity.

The Will disputes team at Quastels LLP can help you gather and assess this evidence and give you a clear view on whether a claim is worth pursuing–and what it might cost.

3. Knowledge and Approval

Another major claim–often the hardest for the general public to grasp–is that a will can be invalid for “want of knowledge and approval.” In short, a testator must know and approve the contents of their Will. While this may sound similar to limbs 1–3 of the Banks v Goodfellow test on capacity, it is a separate, standalone claim. It should not be underestimated: this ground has succeeded where all others have failed.

Whereas capacity is a general question, knowledge and approval is specific. A good example is someone who cannot read – they may have the requisite capacity to make a Will but if they sign a document without understanding its contents because they were unable to read it or it was not explained to them, they would not be considered to have had the requisite knowledge and approval of its contents.

The burden of proof lies with the person seeking to uphold the Will. This claim often runs alongside incapacity arguments and can rescue a case that might otherwise fail. It is a technical area where good legal advice is essential.

At Quastels LLP, our lawyers are adept at identifying and pursuing knowledge and approval claims, often in combination with other grounds. If you suspect a will was signed without proper understanding, we can review the circumstances and advise on the best strategy to protect your interests.

Undue Influence

A Will may be challenged under English law on the grounds of undue influence–a claim that is difficult to prove, with few cases succeeding.

To establish undue influence, it must be shown that the testator was subject to such influence at the time the will was executed and, as a result, was coerced (or fraudulently misdirected) into making it. Mere suspicion is not enough: the facts must be “inconsistent with any other hypothesis”. In other words, there must be no plausible explanation for the will other than undue influence–a very high threshold.

The Court of Appeal in Rea v Rea reinforced this difficulty, confirming that influence alone is not unlawful. To succeed, there must be evidence–or strong influence–of actual coercion, such that the testator’s free will was overborne and dominated by another person.

It is also important to note that unsuccessful undue influence claims can result in adverse costs orders, meaning the claimant may be required to pay the opponent’s legal costs. For this reason, it is always prudent to seek specialist advice early, so the merits of any potential claim can be properly assessed.

Unlike challenges based on lack of capacity or want of knowledge and approval, the burden of proof in undue influence cases rests entirely on the party alleging it.

Fraudulent Calumny

Fraudulent calumny is a distinct claim, though often compared to undue influence. It arises where:

“[Party] A poisons the testator’s mind against [Party] B–who would otherwise be a natural beneficiary–by casting dishonest aspersions on B’s character.”

To succeed, a claimant must approve all three elements:

1. False statements: Party Q made false statements about you to the testator regarding your character;
2. Knowledge or recklessness: Those statements were made knowing they were false, or with reckless disregard for the truth; and
3. Causation: You would have been a natural beneficiary but for Party A’s conduct.

Although clients often wish to explore this route, fraudulent calumny is the most challenging of all Will-dispute claims. Like undue influence, it carries significant cost risks if unsuccessful. For this reason, prospective claimants should always seek specialist advice before proceeding.

What Happens Next?

If a Will is successfully invalidated, the testator’s previous Will usually takes effect. If there is no earlier Will, the estate will be distributed under the intestacy rules.

It is therefore crucial to consider the practical consequences of a Will challenge. For example, if an earlier will contains similar provisions, the effort and cost of litigation may achieve little. In some cases, multiple Wills may need to be contested to achieve the desired outcome.

For these reasons, clients should always seek specialist advice before proceeding, to ensure that any potential claim is both viable and worth pursuing.

Costs

The general rule in litigation is that the unsuccessful party pays the successful party’s costs. Probate disputes, however, allow for an important exception: where investigations were justified, the Court may order the deceased’s estate to cover the costs of any reasonable inquiries.

In rare cases, claimants may also recover costs from professional Will-drafters if their failure to keep proper records or follow established drafting conventions contributed to the dispute.

If you are concerned about potential costs, seek specialist advice early. A professional can help assess the merits of your claim and advise on strategies to minimise financial risk.

Conclusion

Whilst there may be ways to challenge a Will, potential claimants should obtain specialist advice as soon as possible in order to secure crucial evidence and to assess the merits of any claim before embarking on potentially risky litigation. The Will disputes team at Quastels LLP is adept in helping claimants at all stages of their claim.

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