Could the 1956 UK / India Estate Tax Treaty help you with your estate planning?

Some individuals of Indian origin may find they can benefit from the 1956 double tax treaty between the UK and India (the Treaty); a treaty which after more than six decades still remains in place.

If you have retained sufficient connections with India and these amount to ‘domicile’ under the laws of India (and remain so at the date of your death) and you are deemed domiciled in the UK (and remain so at the date of your death), the deemed domicile rules may be overridden by the Treaty. If the Treaty does not apply, the deemed domicile rules result in an individual’s worldwide estate being subject to UK inheritance tax (IHT) on death at 40 per cent (subject to any available exemptions (eg the spousal exemption) and/or reliefs). 

If an individual takes certain steps, putting the correct building blocks in place during their lifetime and at the date of their death the Treaty applies, their UK located assets would remain liable to IHT, but, significantly, their non-UK assets should fall outside the IHT net. 

There is always the possibility that the Treaty may be withdrawn or amended, especially bearing in mind India does not currently impose death duties. However, until that time, for certain individuals the Treaty might be a useful tool in their estate planning armoury, providing IHT relief on death in relation to assets located outside the UK. 

When is this planning worth undertaking?

The initial advice needed to consider whether someone might benefit from the Treaty is detailed and requires advice from qualified advisers in English law and Indian law. 

Due to the not insignificant planning and implementation costs involved, it is generally thought that investigating whether the Treaty might apply to you is only worth undertaking if you have significant wealth outside the UK, for example in excess of £3m. 

How can RSM help?

If you think you might benefit from advice in relation to this issue, please get in touch with Sophie St John or Alix Langrognat