Double taxation on overseas assets- how unilateral relief can be the solution

When an estate includes overseas assets, executors can face inheritance or estate tax charges in more than one country. Many assume relief is only available where the UK has a double tax treaty, but the UK’s inheritance tax (IHT) treaty network is surprisingly limited.

Overseas property, bank accounts or investments can create a risk of the same asset being taxed twice. While this can complicate estate administration, double taxation is not always unavoidable.

The UK has IHT treaties with only six countries: South Africa, the USA, the Netherlands, the Republic of Ireland, Sweden and Switzerland plus a small number of older estate duty treaties (France, Italy, India and Pakistan). As a result, treaty relief is often unavailable.

In many cases, unilateral relief may provide the answer. This relief can reduce UK IHT where foreign tax has been paid on the same overseas asset. However, eligibility depends on factors such as the nature of the foreign tax, the asset involved, and where the asset is treated as situated under UK law. Any credit is generally capped at the amount of UK tax attributable to that asset.

A common mistake is to assume that paying foreign tax automatically entitles the estate to UK relief. Executors must carefully consider how the asset is characterised and whether the foreign tax qualifies for credit.

For estates with an international element, early specialist advice is essential. Key questions include:

• Is there an applicable IHT treaty?
• If not, can unilateral relief apply?
• How is the asset classified and where is it situated for UK tax purposes?