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.
