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IHTM27188 | Foreign property: Double Taxation Conventions: Unilateral Relief: relief under IHTA84/S159 (3) and S159 (4)

From HM Revenue & Customs · Inheritance Tax Manual

Relief under s159(3)

Relief is due under IHTA84/S159 (3) where both the UK and another foreign country charge tax on the same property and that property is situated:

  • neither in the United Kingdom nor in the foreign country, or

  • both in the United Kingdom and in the foreign country.

Where relief is due under IHTA84/S159 (3), it is given on a split credit basis and will be less than the foreign tax paid. The amount of the credit is worked out by using the formula

A ÷ (A + B) and then multiplying the result by C

where:

  • A is the amount of Inheritance Tax due

  • B is the amount of the foreign tax

  • C is the smaller of A and B

Example 1

Country X and the UK both tax an item of property which is situated neither in Country X nor the UK.

  • Country X charges tax of £40

  • The UK charges IHT of £60

The credit is: 60 ÷ (60 + 40) ×40 = £24

Relief under s159(4)

Where tax is imposed on the same property by two or more foreign countries and the property is situated:

  • neither in the United Kingdom nor in any of those foreign countries, or

  • both in the United Kingdom and in each of those foreign countries,

relief is due under IHTA84/S159 (4).

The formula, A ÷ (A + B) x C applies where:

  • A is the amount of Inheritance Tax

  • B is the aggregate amount of the foreign tax imposed in each of the foreign countries

  • C is the aggregate of A and B, less whichever is the largest amount of tax paid (in either the UK or one of the foreign countries).

Example 2

Each of Country X, Country Y and the UK tax an item of property which is not situated in Country X, Country Y nor the UK.

  • Country X charges £40

  • Country Y charges £20

  • The UK charges IHT of £60

The credit is 60 ÷ (60 + 40 + 20) × (40 + 20) = £30

Relief under s159(5)

If relief is due under IHTA84/S159 (3)(a) or IHTA84/S159 (4)(a), IHTA84/S159 (5) must be considered when calculating the foreign tax paid (B in the formulas above).

Where relief is due under IHTA84/S159 (3)(b) or IHTA84/S159 (4)(b), above, the foreign tax at B is simply the gross amount paid. You do not need to take account of any credit for tax paid in another country.

If any of the above scenarios apply, please refer to Technical.