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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 IHT net on non-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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The English Concept of Domicile and How to Challenge It

This article examines the English concept of domicile, explaining why it is important and should not be confused with residency, nationality or immigration status. It also considers the evidence the English Court will examine when a person’s domicile is challenged.

The English concept of domicile is based on English common law, i.e. historic case law, and it is different to what might be understood by the term ‘domicile’ in other jurisdictions, in particular civil jurisdictions where the term domicile for the most part is interchangeable with residency. It is also not uncommon for people, especially internationally mobile HNW individuals and executives, to have a domicile which is different to their residency and/or nationality. The English meaning of domicile can be partly understood as meaning someone’s “permanent home”.

The Law

There are three types of domicile: a domicile of origin, a domicile of choice and a domicile of dependency.

1. Domicile of Origin

In English common law, every person is born with a domicile of origin, which is then their domicile until it is displaced notwithstanding that it is possessed involuntarily. The domicile of origin of a legitimate child born during the lifetime of his father is his father’s domicile at the time of birth.

For the avoidance of doubt a domicile of origin cannot be chosen and can only be lost if a new domicile of choice (see paragraph 2 below) is acquired. A person’s domicile of origin remains their default domicile for their entire life but can in certain circumstances revive if a person’s domicile of choice is abandoned (see paragraph 3 below).

2. Acquisition of Domicile of Choice

Once 16 years old, a person may displace their domicile of origin by acquiring a domicile of choice. A person acquires a domicile of choice in another jurisdiction by residing there with an intention to do so permanently or for an unlimited time. Therefore, there are two distinct parts to acquiring a domicile of choice, namely:

1. the individual must physically reside in their country of choice (rather than be a mere traveller or occasional visitor); and
2. have an intention to reside in that jurisdiction permanently and indefinitely, which intention is not limited for a particular period or particular purpose.

It is the second limb of this test which can mean a domicile of choice is hard to obtain despite many years or even decades of residency in a foreign jurisdiction. Direct evidence that the individual in question intended to reside permanently in his chosen jurisdiction of residence is required before s/he can definitively be said to have lost his or her domicile of origin and acquired a new domicile of choice. This notwithstanding:

1. If a person determines to spend the rest of his life in a jurisdiction, then he has the necessary intention, even if he does not consider that decision to be irrevocable. The absence of any intention to leave may suffice.
2. It will not be sufficient if there is an intention to return to the jurisdiction of previous domicile at some point, so that although present residence is indefinite, it is not unlimited in time, unless that intention is so vague as not to be properly formed.

3. Loss of Domicile of Choice

If a domicile of choice is never acquired, or is acquired but then abandoned, the domicile of origin will prevail (i.e. revive).

A domicile of choice is abandoned by giving up both the residence and the intention necessary for its acquisition in the first place.

4. Domicile of Dependency

This concept is less relevant today but is still worth bearing in mind:

1. Legitimate children up to the age of 16 are dependent on their father’s domicile, as set out above. Where a child is born out of wedlock or their father is deceased, they may take on their mother’s domicile.
2. Women who were married before the Matrimonial Causes Act 1973 came into effect in 1973 took on their husband’s domicile.

Why is Domicile Important?

The English concept of domicile matters because it determines which legal system has the strongest claim over a person’s life for core issues such as taxation, succession, and jurisdiction. It is far more enduring than residence and often decisive in private wealth disputes.

Tax

Domicile is central to determining an individual’s exposure to UK taxation, particularly inheritance tax. It dictates whether a person is taxed on their worldwide estate or only on UK-situated assets, and it governs access to favourable regimes historically available to non-UK domiciled individuals. Because domicile is difficult to change and heavily intention-based, it often becomes a decisive issue in tax planning and disputes involving internationally mobile clients.

Succession

In cross-border estates, domicile determines which country’s succession laws apply on death. This can affect the validity of wills, the distribution of assets, and the interaction with forced-heirship regimes overseas. In contentious private wealth matters, establishing a deceased’s true domicile frequently shapes the entire litigation strategy, as it may determine both the applicable law and the rights of competing beneficiaries. For example, to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975, the deceased must have died domiciled in England and Wales.

Family Law

Domicile also plays a significant role in family law, influencing jurisdiction for divorce, financial relief, and the recognition of foreign marriages or divorces. Because domicile is treated as a person’s “personal law,” it can affect questions of capacity and personal status. Its enduring nature means that domicile often anchors jurisdiction even when individuals have lived in multiple countries.

How to Challenge Domicile

Where domicile is in dispute, it must be determined by the English Court, which will normally order a hearing so that it can review all the facts and come to a decision. The burden of proof for proving that an individual has acquired domicile of choice is that of the person or entity alleging it.

Domicile disputes are very fact sensitive and judges have a wide amount of discretion to decide them. Therefore, trials regarding domicile can be unpredictable and each case will turn on its own specific facts.

However, the court will tend to examine the following categories of evidence before making an overall assessment on the balance of probabilities:

Family Background: the court will want to review a person’s family background in detail including the birthplace of parents and grandparents. It will also examine marriages, divorces and conduct a careful review of where the person in question lived as a child and with whom. The court will also examine a person’s current family including the birthplace and nationality of any spouse and children. Family ties are also important and the court will look to understand where close family members reside and where a person’s children are educated, as this can indicate where a person’s ‘domicile’ or ‘permanent home’ might be.

Physical Presence: the court will want a full history of where the person in question has lived and why, i.e. for school, work etc. Dates of residence in a particular country and intention regarding residence there will be examined. The court will also examine residency, where a person pays taxes and what citizenship they hold. It will also require information on visits to a person’s country of birth and will want to examine a person’s relationship with their country of origin.

Property and Assets: the court will want to know where a person owns property and hold assets. This includes the location of any family home, pensions, bank accounts, investments etc. The analysis can be quite granular and the court may go as far as to examine which bank accounts etc. are or have been used most frequently to understand where a person has been resident or visits most frequently.

Social Ties: the court will even go as far as examining a person’s social ties, including if they belong to any clubs, what football team they support and where their registered doctor and dentist are located. They will also look to understand where a person has voted and what causes or interests he or she support.

Therefore, for highly mobile individuals, a domicile challenge is likely to involve a significant examination of their personal life. Small and seemingly insignificant details can make all the difference and should not be underestimated.

The Private Wealth Disputes team at Quastels LLP are adept at advising clients on all aspects of domicile, including when to issue or defend a domicile challenge.

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A Welcome Relief

Ever since they were announced at Autumn Budget 2024, the Government’s reforms to Agricultural Business Relief (APR) and Business Property Relief (BPR) have been a source of great concern to many owners of farms and family businesses. This has been particularly the case for farmers, who worry that an Inheritance Tax (IHT) bill may be unaffordable given the combination of small farming incomes and high land values, and therefore that succession to the next generation may become unviable.

However, in a rare bit of good tax news, the Government announced a pair of changes late last year that will both save tax and somewhat simplify planning.

The changes

For a full explanation of the reforms as originally proposed, see our previous article. In brief, they mean that from 6 April 2026 a cap will be introduced on the total value of property on which APR and BPR can be claimed at the rate of 100%. Anything above that threshold will be limited to 50% relief.

The first change to the proposed reform came at the 2025 Budget, when it was announced that the threshold would become transferable between a married couple or civil partners. In other words, if the person who died first did not fully utilise their own 100% allowance (for example, because they left the assets qualifying for relief to their spouse/civil partner), the person who died second would then be able to claim a double allowance.

Significantly, the Government confirmed that this would apply even where the first person had died before the reforms were announced. This will therefore avoid one of the significant points of unfairness that had been identified with the original proposals, in which a person who had been widowed before Autumn Budget 2024 would have missed out on the opportunity to take advantage of their deceased spouse/civil partner’s allowance.

The second change was slipped out in a press release on 23 December 2025, although no doubt will have come as a welcome Christmas present for many families. This increased the allowance for 100% relief from £1 million to £2.5 million.

What it means for you

These changes will clearly be good news for owners of family businesses and agricultural land. Two key benefits are:

• the transferability of the allowance means that it will no longer be as necessary to structure estate planning in such a way as to utilise the allowance on the first death (for example, by giving a share of the land/business to children or a trust); and
• the increased thresholds can reduce IHT bills for anyone with a farm or business worth more than £1 million, and for some may mean they no longer have an IHT bill at all.

However, despite these changes, careful planning and expert advice will still be very important.

For one thing, many families will still find themselves with a sizeable IHT bill even with the increased threshold. They may benefit greatly from proper estate planning advice. The best strategy will of course depend on their particular circumstance, but could for example include lifetime gifts of land, company shares or partnership capital, or redirecting assets into a trust (which will still benefit from their own separate £1 million allowance for 100% relief).

Moreover, it is important to remember that the conditions for claiming APR and BPR have always been very strict and full of traps for the unwary. Very small details may result in a loss of relief (and therefore a vastly-higher tax bill) if not spotted in time.

If you are planning to rely on APR or BPR as part of your own succession plan, please do contact the Private Wealth and Tax team at Quastels, who have a great deal of specific experience in this area. We can review your current arrangements and identify the risks and opportunities you need to consider.

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