Could a 70-year-old tax treaty cut your UK inheritance tax bill?

If you have lived in the UK for many years but retain connections with India or Pakistan, two tax treaties signed in the 1950s could have an unexpected impact on your inheritance tax position.

From 6 April 2025, the UK changed the way inheritance tax (IHT) applies to overseas assets. Broadly, individuals who have been UK resident for at least 10 of the previous 20 tax years can become long-term UK residents for IHT purposes, potentially bringing their overseas assets within the UK IHT net.

But that may not always be the end of the story.

The UK entered into estate duty treaties with India in 1956 and Pakistan in 1957. Despite being almost 70 years old, these treaties remain relevant for IHT purposes and may, in the right circumstances, restrict the UK’s ability to tax certain overseas assets on death.

Perhaps surprisingly, the UK's recent IHT reforms have made these historic treaties particularly interesting. Although domicile is no longer the main connecting factor under the UK’s domestic IHT rules, it can still matter under these treaties.

Why could this make a difference?

Consider someone who has lived in the UK for many years but retains strong connections with India and owns investments, bank accounts or other assets overseas.

Under the domestic rules, they may be a long-term UK resident and therefore potentially within the scope of UK IHT on those overseas assets.

However, if they are domiciled in India for the purposes relevant to the UK-India treaty, the treaty may restrict the UK's taxing rights over certain assets. A similar issue can arise for individuals with connections to Pakistan.

This does not mean that everyone with Indian or Pakistani connections can benefit from treaty protection. Domicile is a complex legal concept and is different from residence, nationality or citizenship.

The relevant domicile position may also need to be established under the laws of both countries concerned. Establishing an Indian or Pakistani domicile under English law alone may therefore not be sufficient, and local law advice may be required.

Could the treaties be relevant to you?

If you have connections with India or Pakistan and have spent a significant period living in the UK, it may be worth asking:

• How long have I been UK resident?

• Where am I domiciled for the purposes of the relevant treaty?

• Where are my assets legally situated?

• Do I have separate UK and overseas wills, and which assets pass under each?

• Do I hold UK property through an overseas company, partnership or financing arrangement?

• Are any significant assets held in trust?

The answers could produce a different IHT position from looking at the UK's domestic residence rules alone.

Why could your will matter?

One of the less obvious features of these treaties is that where an asset is situated may not be the only thing that matters. How the asset passes on death can also affect the treaty analysis.

For example, consider someone with an Indian domicile who has an Indian will dealing with their Indian assets and an English will dealing with the remainder of their estate, including overseas bank accounts.

The fact that those bank accounts are situated outside Great Britain may not, by itself, secure treaty protection. It may also be necessary to consider the law governing the disposition or devolution under which those assets pass on death.

This can give succession planning an unexpected tax significance. Where an individual has assets in several countries or multiple wills, it is important to consider not only where the assets are, but also how they will pass on death.

The applicable law can involve detailed succession and conflict-of-laws questions, so the fact that an asset is included in an English will not necessarily determine the answer by itself. Nevertheless, it highlights why wills, domicile and tax planning should be considered together rather than in isolation.

Where does the protection stop?

These treaties can potentially provide valuable protection, but they are not a blanket exemption from IHT.

Some areas require particular care:

• Lifetime gifts: The treaties are principally concerned with taxes imposed on death and should not be assumed to provide equivalent protection for lifetime transfers

• UK property held through offshore structures: Special IHT rules can apply to certain overseas companies, partnerships and financing arrangements deriving value from relevant UK property. The interaction between these rules and the treaties therefore requires separate consideration

• Trusts: Overseas trusts are subject to their own IHT rules, which changed significantly from 6 April 2025. The treaties also contain specific provisions concerning settled property

• Spouses and civil partners: The domestic spouse or civil partner exemption has its own rules and should be considered separately from any treaty protection

There is also an important technical distinction in the treaties themselves. They use historic terminology, including references to “Great Britain” rather than simply the “UK”. The precise wording of the relevant treaty, including its rules for determining where an asset is situated, therefore matters.

Old treaties, very modern consequences

It would be easy to assume that estate duty treaties negotiated in the 1950s have little relevance to modern estate planning. For some individuals with Indian or Pakistani connections, the opposite may be true.

The UK's move to a residence-based IHT regime means that someone who has lived here for many years may now be exposed to IHT on overseas assets. But residence may not tell the whole story.

In the right circumstances, domicile, the location of assets and the way those assets pass on death may allow one of these historic treaties to restrict the UK's taxing rights.

The protection is not automatic, however. These are historic treaties containing detailed provisions on domicile, asset location, succession and settled property. Their application can therefore turn on relatively fine legal distinctions and should be considered on an asset-by-asset basis, with advice in India or Pakistan where appropriate.

For some families, these treaties could significantly affect the inheritance tax payable on overseas assets. Given the UK's move to a residence-based regime, now is a good time to review your domicile position, wills and overseas holdings to ensure you are not overlooking valuable treaty protection.

For advice on how these rules may apply to your circumstances, please get in touch with Anamika Pandey and/or Naira Martirosian from our Tax team.

About the authors

Anamika Pandey is a Director in the Tax team and Country Lead for India. Naira Martirosian is a Trainee Solicitor in the Tax team. Both Anamika and Naira advise on UK tax matters, including cross-border issues affecting individuals and businesses with international interests.