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Double Taxation Treaty

Also known as: Tax Treaty, DTA

Definition

A double taxation treaty is an agreement between the UK and another country that prevents you from paying inheritance tax twice on the same assets when you die.

Understanding double taxation treaties is essential if you own foreign property or have international assets, as they determine which country can tax your estate and provide relief from paying full tax rates in multiple jurisdictions.

What Does Double Taxation Treaty Mean?

A double taxation treaty (also called a tax treaty or DTA) is a bilateral agreement between the UK and specific countries that allocates inheritance tax rights and prevents estates from being taxed twice on the same assets. The UK currently has inheritance tax conventions with ten countries: France, Italy, India, Pakistan, USA, Republic of Ireland, South Africa, Netherlands, Sweden, and Switzerland. These are distinct from the UK's much more extensive network of income tax treaties.

When someone dies with assets in multiple countries, both jurisdictions may claim the right to tax the same property. Without relief, effective tax rates could exceed 80%. Emma owns a £400,000 French villa and £600,000 in UK assets. When she dies, France taxes the villa under French succession tax (potentially 20-45%) and the UK taxes her worldwide estate at 40% IHT above the nil-rate band. Under the UK-France treaty, Emma's estate pays French tax first, then receives a credit against UK IHT on the same property, capping total tax at the higher rate rather than the combined rate.

Treaties determine which country has "primary" versus "secondary" taxing rights. Under HMRC Inheritance Tax Manual IHTM27181, if you pay overseas tax, HMRC gives credit for the foreign tax paid against UK IHT due on the same assets. The credit equals the lower of: (a) foreign tax actually paid, or (b) UK IHT on those assets. Immovable property is typically taxed where it's located, while movable property is taxed in the country of domicile. Relief must be claimed by completing IHT forms with evidence of foreign taxes paid.

For countries without treaties, unilateral relief is available under UK domestic law. David owns a £350,000 Spanish villa. Spain and the UK have no inheritance tax treaty, but David's estate can claim unilateral relief from HMRC for Spanish tax paid, preventing double taxation. Treaties provide greater certainty than unilateral relief. Professional advice from tax advisers with international expertise is essential, particularly following April 2025 deemed domicile rule changes.

Common Questions

"Which countries have inheritance tax treaties with the UK?" The UK has inheritance tax treaties with ten countries: France, Italy, India, Pakistan, USA, Republic of Ireland, South Africa, Netherlands, Sweden, and Switzerland. These are separate from income tax treaties. Without a treaty, you can still claim unilateral relief from HMRC.

"How does a double taxation treaty reduce my inheritance tax bill?" If you pay estate tax in another country, HMRC gives you a credit against your UK IHT bill. The credit equals the lower of the overseas tax paid or the UK IHT on those assets. This prevents paying full tax twice.

"Do I need a double taxation treaty if I own property abroad?" Not necessarily, but treaties provide clearer relief. Without a treaty, you can claim unilateral relief from HMRC for foreign taxes paid. Treaties provide more certainty about which country has primary taxing rights.

Common Misconceptions

Myth: The UK has tax treaties with most countries, so I won't face double taxation.

Reality: The UK has inheritance tax treaties with only ten countries. While the UK has 100+ income tax treaties, inheritance tax treaties are rarer. You can claim unilateral relief from HMRC without a treaty, though this provides less certainty.

Myth: If there's a treaty, I won't pay tax in one country.

Reality: Treaties don't eliminate tax—they prevent paying full tax twice. The treaty determines which country taxes which assets and provides credit relief so total tax doesn't exceed the higher rate. You pay foreign tax first, then receive a UK IHT credit.

  • Inheritance Tax (IHT): The UK tax that treaties provide relief from when foreign estate taxes are also due.
  • Foreign Assets: Assets outside the UK that trigger treaty considerations for determining taxing rights.
  • Expat: UK nationals abroad commonly need treaty relief for property in multiple countries.
  • Tax Credit: The relief mechanism—crediting foreign taxes paid against UK IHT liability.
  • Overseas Property: Property abroad typically taxed first where located under treaty provisions.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.