Cross-Border IHT Planning: How a Forgotten Treaty Saved a £1.6 Million Tax Bill
Personal tax planning can feel overwhelming, especially when significant wealth or complex circumstances are involved. Our experienced team specialises in helping individuals and families navigate sophisticated tax challenges with confidence and clarity.
Our clients were a married couple in their late sixties; both born in India, both long-term UK residents, and both with significant assets on either side of the world.
Between them they held a combined estate of approximately £7.5 million, split across UK properties, a family trading business, and a substantial portfolio of Indian assets including properties, private company shareholdings, a partnership interest, and cash.
They had lived in the UK for decades. One had been here since the late 1970s, the other since the late 1980s. Both held British passports. Both were fully settled in the UK. But throughout that time they had also maintained deep and active connections with India, such as properties, businesses, bank accounts, regular visits, and a long-expressed intention to eventually return.
Under the old non-domicile regime, those Indian connections had provided meaningful IHT protection. Provided they could demonstrate a non-UK domicile, their Indian assets were treated as excluded property and fell entirely outside the scope of UK IHT. For this couple that meant approximately £3.2 million of assets were sheltered from a 40% charge.
From 6 April 2025 that shelter disappeared.
The Problem
New legislation introduced in April 2025 abolished the non-domicile IHT regime entirely and replaced it with a residence-based test. Under the new rules, any individual who has been UK resident for 10 or more of the previous 20 tax years has their entire worldwide estate, including all overseas assets brought within the scope of UK IHT at 40%. Domicile is no longer relevant under domestic law.
Both clients satisfied the Long-Term Resident test comprehensively. Their Indian estate of £3.2 million, previously sheltered, was now fully chargeable.
On the basis of no planning, the IHT liability on second death was £3m approximately. Against a combined estate consisting almost entirely of illiquid assets, such as properties, a private business, Indian company shares; and with no pensions, no life insurance, and no liquid savings, that bill would have had to be met through forced asset sales within six months of death.
That was the position when they came to us.
Our Approach
Our starting point was to understand every asset in the estate; what it was, how it was held, what reliefs might be available, and critically, what the interaction between UK and Indian law meant for each one.
The most important step in the entire engagement was a review of the international treaty position. Most advisers working on cross-border IHT planning focus exclusively on domestic legislation - the nil rate band, business property relief, spousal exemptions.
Fewer look at the treaty positions. In this case that oversight would have cost the clients over £1.3 million on the Indian assets alone.
The UK and India signed an Estate Duty Convention in 1956. Despite India abolishing its own estate duty in 1985 and the UK replacing estate duty with inheritance tax in 1984, this Treaty remains in force. When the new legislation was enacted and the non-domicile regime was abolished, there was genuine uncertainty in professional circles about whether the Treaty had survived. In January 2025 the Government confirmed that the Treaty would not be renegotiated and remains in effect.
The Treaty provides that where an individual is domiciled in India under Indian general law at the time of their death, and their Indian assets pass under a disposition governed by Indian law, those assets are not subject to UK inheritance tax.
The Long-Term Resident test is simply irrelevant to this analysis. The Treaty looks to actual domicile under Indian law; a question of intention, connection, and evidence and not to a mechanical residence count.
For our clients the position was genuinely arguable. They had retained Indian properties throughout their time in the UK. They maintained active business interests in India. They held Indian bank accounts and memberships. They visited regularly. One had informed HMRC of their non-UK domicile status as far back as the 1990s.
Established legal authority makes clear that long residence alone does not establish a domicile of choice where the individual has maintained meaningful and ongoing connections with their country of origin, a principle that applied strongly on the facts of this case.
Individuals in this position should look to obtain specialist Indian legal counsel to obtain a written opinion on their domicile status under Indian law. That opinion is the foundation of the Treaty protection and without it the position cannot be defended against an HMRC challenge.
We also prepared a comprehensive review covering every asset in the estate and a phased implementation plan to address each element of the liability systematically.
Key Points
The Treaty conditions are not automatic
Two things must be in place for the protection to apply. First, the clients must be domiciled in India under Indian general law at the time of death and the evidence to support that position must be assembled and maintained now, while they are alive.
Second, the Indian assets must pass under a disposition regulated by Indian law, not under a UK will. We adviced the client that UK wills needed to be amended to expressly exclude Indian assets, and separate Indian wills prepared under Indian law to cover the Indian estate. Without both steps the Treaty protection is unavailable regardless of the underlying domicile position.
Business Property Relief on the trading company
The family business qualified for 100% Business Property Relief as unquoted shares in a trading company. On reviewing the statutory accounts we confirmed that the freehold office premises was held within the company as a balance sheet asset meaning BPR applied at 100% on the shares, covering the property value within the company rather than at 50% as would have been the case had the property been held personally. Combined BPR relief on the company shares produced an IHT saving of £300,000. Recent reforms to Business Property Relief, which introduced a cap on 100% relief per person, did not affect this position at current values.
Pension provision
Neither client had any pension. Establishing a Small Self-Administered Scheme through the trading company was recommended, with employer contributions calibrated to the company's current profitability.
Liquidity
With no liquid assets in the estate, a life insurance policy written in trust was recommended as an immediate priority. This provides a guaranteed source of funds to meet the residual IHT liability on second death without any forced property or business asset sales.
Lifetime planning
We also advised the clients on a system of annual exemption gifting, normal expenditure out of income, and in due course lifetime gifts of the investment properties and company shares once the CGT position on each is analysed provides a realistic path to further reducing the residual liability over time.
The Outcome
Assuming no planning, the client was facing a IHT tax liability of approximately £3m. With the BPR relief on the family business, the position reduced to approximately £2.7m, a saving of £300,000.
By combining the Treaty exemption with Business Property Relief, the clients' estimated inheritance tax liability reduces to £1.4m, a saving of £1.6m against their current position. This is subject to establishing their Indian domicile to HMRC's satisfaction, which remains the critical step.
With the wider planning implemented over time, such as lifetime gifting, normal expenditure out of income and a set up of a Family Investment Company in due course, a long-term target of £300,000–£500,000 in residual liability is achievable. That residual is covered by the whole of life insurance policy, eliminating the liquidity risk and ensuring the estate can be administered without selling a single asset under pressure.
Conclusion
The abolition of the non-domicile regime was widely presented as closing a significant IHT planning opportunity for long-term UK residents with overseas assets. For many clients that is true. But the 1956 UK-India Treaty survived the new legislation intact. It overrides the Long-Term Resident rules, it protects the entire Indian estate, and it is available to clients who have maintained genuine Indian connections throughout their time in the UK.
Identifying this opportunity required looking beyond domestic legislation to the treaty network and then understanding precisely what conditions needed to be in place for the protection to apply. The difference between knowing the Treaty exists and knowing how to make it work is the difference between a £2.7 million IHT bill and a £500,000 one.
For any client of Indian origin with significant Indian assets, reviewing the 1956 Treaty position is now one of the most important conversations their tax adviser should be having.
ASWATAX provides specialist UK tax advisory services to high-net-worth individuals, owner-managed businesses, and entrepreneurs. To discuss your inheritance tax position please contact us at taxadvisory@aswatax.co.uk
What to expect from this Insight
Our clients were a married couple in their late sixties; both born in India, both long-term UK residents, and both with significant assets on either side of the world.
Between them they held a combined estate of approximately £7.5 million, split across UK properties, a family trading business, and a substantial portfolio of Indian assets including properties, private company shareholdings, a partnership interest, and cash.
They had lived in the UK for decades. One had been here since the late 1970s, the other since the late 1980s. Both held British passports. Both were fully settled in the UK. But throughout that time they had also maintained deep and active connections with India, such as properties, businesses, bank accounts, regular visits, and a long-expressed intention to eventually return.
Under the old non-domicile regime, those Indian connections had provided meaningful IHT protection. Provided they could demonstrate a non-UK domicile, their Indian assets were treated as excluded property and fell entirely outside the scope of UK IHT. For this couple that meant approximately £3.2 million of assets were sheltered from a 40% charge.
From 6 April 2025 that shelter disappeared.
The Problem
New legislation introduced in April 2025 abolished the non-domicile IHT regime entirely and replaced it with a residence-based test. Under the new rules, any individual who has been UK resident for 10 or more of the previous 20 tax years has their entire worldwide estate, including all overseas assets brought within the scope of UK IHT at 40%. Domicile is no longer relevant under domestic law.
Both clients satisfied the Long-Term Resident test comprehensively. Their Indian estate of £3.2 million, previously sheltered, was now fully chargeable.
On the basis of no planning, the IHT liability on second death was £3m approximately. Against a combined estate consisting almost entirely of illiquid assets, such as properties, a private business, Indian company shares; and with no pensions, no life insurance, and no liquid savings, that bill would have had to be met through forced asset sales within six months of death.
That was the position when they came to us.
Our Approach
Our starting point was to understand every asset in the estate; what it was, how it was held, what reliefs might be available, and critically, what the interaction between UK and Indian law meant for each one.
The most important step in the entire engagement was a review of the international treaty position. Most advisers working on cross-border IHT planning focus exclusively on domestic legislation - the nil rate band, business property relief, spousal exemptions.
Fewer look at the treaty positions. In this case that oversight would have cost the clients over £1.3 million on the Indian assets alone.
The UK and India signed an Estate Duty Convention in 1956. Despite India abolishing its own estate duty in 1985 and the UK replacing estate duty with inheritance tax in 1984, this Treaty remains in force. When the new legislation was enacted and the non-domicile regime was abolished, there was genuine uncertainty in professional circles about whether the Treaty had survived. In January 2025 the Government confirmed that the Treaty would not be renegotiated and remains in effect.
The Treaty provides that where an individual is domiciled in India under Indian general law at the time of their death, and their Indian assets pass under a disposition governed by Indian law, those assets are not subject to UK inheritance tax.
The Long-Term Resident test is simply irrelevant to this analysis. The Treaty looks to actual domicile under Indian law; a question of intention, connection, and evidence and not to a mechanical residence count.
For our clients the position was genuinely arguable. They had retained Indian properties throughout their time in the UK. They maintained active business interests in India. They held Indian bank accounts and memberships. They visited regularly. One had informed HMRC of their non-UK domicile status as far back as the 1990s.
Established legal authority makes clear that long residence alone does not establish a domicile of choice where the individual has maintained meaningful and ongoing connections with their country of origin, a principle that applied strongly on the facts of this case.
Individuals in this position should look to obtain specialist Indian legal counsel to obtain a written opinion on their domicile status under Indian law. That opinion is the foundation of the Treaty protection and without it the position cannot be defended against an HMRC challenge.
We also prepared a comprehensive review covering every asset in the estate and a phased implementation plan to address each element of the liability systematically.
Key Points
The Treaty conditions are not automatic
Two things must be in place for the protection to apply. First, the clients must be domiciled in India under Indian general law at the time of death and the evidence to support that position must be assembled and maintained now, while they are alive.
Second, the Indian assets must pass under a disposition regulated by Indian law, not under a UK will. We adviced the client that UK wills needed to be amended to expressly exclude Indian assets, and separate Indian wills prepared under Indian law to cover the Indian estate. Without both steps the Treaty protection is unavailable regardless of the underlying domicile position.
Business Property Relief on the trading company
The family business qualified for 100% Business Property Relief as unquoted shares in a trading company. On reviewing the statutory accounts we confirmed that the freehold office premises was held within the company as a balance sheet asset meaning BPR applied at 100% on the shares, covering the property value within the company rather than at 50% as would have been the case had the property been held personally. Combined BPR relief on the company shares produced an IHT saving of £300,000. Recent reforms to Business Property Relief, which introduced a cap on 100% relief per person, did not affect this position at current values.
Pension provision
Neither client had any pension. Establishing a Small Self-Administered Scheme through the trading company was recommended, with employer contributions calibrated to the company's current profitability.
Liquidity
With no liquid assets in the estate, a life insurance policy written in trust was recommended as an immediate priority. This provides a guaranteed source of funds to meet the residual IHT liability on second death without any forced property or business asset sales.
Lifetime planning
We also advised the clients on a system of annual exemption gifting, normal expenditure out of income, and in due course lifetime gifts of the investment properties and company shares once the CGT position on each is analysed provides a realistic path to further reducing the residual liability over time.
The Outcome
Assuming no planning, the client was facing a IHT tax liability of approximately £3m. With the BPR relief on the family business, the position reduced to approximately £2.7m, a saving of £300,000.
By combining the Treaty exemption with Business Property Relief, the clients' estimated inheritance tax liability reduces to £1.4m, a saving of £1.6m against their current position. This is subject to establishing their Indian domicile to HMRC's satisfaction, which remains the critical step.
With the wider planning implemented over time, such as lifetime gifting, normal expenditure out of income and a set up of a Family Investment Company in due course, a long-term target of £300,000–£500,000 in residual liability is achievable. That residual is covered by the whole of life insurance policy, eliminating the liquidity risk and ensuring the estate can be administered without selling a single asset under pressure.
Conclusion
The abolition of the non-domicile regime was widely presented as closing a significant IHT planning opportunity for long-term UK residents with overseas assets. For many clients that is true. But the 1956 UK-India Treaty survived the new legislation intact. It overrides the Long-Term Resident rules, it protects the entire Indian estate, and it is available to clients who have maintained genuine Indian connections throughout their time in the UK.
Identifying this opportunity required looking beyond domestic legislation to the treaty network and then understanding precisely what conditions needed to be in place for the protection to apply. The difference between knowing the Treaty exists and knowing how to make it work is the difference between a £2.7 million IHT bill and a £500,000 one.
For any client of Indian origin with significant Indian assets, reviewing the 1956 Treaty position is now one of the most important conversations their tax adviser should be having.
ASWATAX provides specialist UK tax advisory services to high-net-worth individuals, owner-managed businesses, and entrepreneurs. To discuss your inheritance tax position please contact us at taxadvisory@aswatax.co.uk
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