Following the reforms to the taxation of non-UK domiciled individuals (non-doms), effective from 6th April 2025, many former non-doms now face exposure to UK inheritance tax (IHT) on their worldwide estates, potentially without the use of trusts to shelter assets from IHT.
The UK’s various IHT treaties (ten in total) and the estate planning opportunities these treaties may provide under the new IHT regime, will become important. These treaties can provide important IHT exemptions which trump the domestic IHT rules.
This article discusses the Indian, Pakistani, French and Italian treaties (the pre-1975 treaties), which have many similarities, and which were agreed prior to 1975 under the UK’s old Estate Tax regime which pre-dated the introduction of the IHT regime.
Please note that this article sets out the legal effect of the treaties as at the date of publication of this article and is subject to any amendments to the treaties following the reforms to the taxation of non-doms.
The New Long-Term Resident Test
The tax concept of ‘domicile’ was abolished with effect from 6th April 2025.
Domicile has a long history in English law and is based upon a person’s country of origin, and their intentions as to where they will live on a permanent or indefinite basis. It is quite possible to live in a country for decades without ever becoming domiciled there under English law, if the requisite intention does not exist.
Under the new rules, anyone who has been a tax resident in the UK for 10 or more of the previous 20 tax years will be subject to IHT on their worldwide estates. This rule has some similarity to the previous ‘deemed domicile’ tax rules which treated a person as UK domiciled after 15 tax years of UK residence.
Domicile under the pre-1975 treaties
However, the concept of domicile is alive and well in the pre-1975 treaties. The test under these treaties is whether a person is domiciled in the UK under traditional common law rules, not how they are treated under UK tax law (as is the case for later treaties). For this reason, a person is not considered ‘domiciled’ in the UK under these treaties merely because they are a long-term resident under tax law.
The consequence of this on the various pre-1966 treaties is considered below.
Indian and Pakistan treaties
The Indian and Pakistani treaties are almost identical. They provide that no IHT may be charged on a person’s death on property outside Great Britain (which does not include Northern Ireland) or the death of a person who was not domiciled (according to English/Scots common law) in Great Britain at the time of death but is domiciled in India or Pakistan (according to that country’s law).
Indian or Pakistani clients may, with proper planning, be able to maintain their Indian or Pakistani domicile status despite ongoing UK residence (and potentially becoming a long-term resident), sheltering their foreign assets from IHT.
These treaties do not impact IHT on lifetime gifts, or that on trusts, unless the trust is charged to IHT on the death of the beneficiary. Note the implications of the Proper Law Rule explained below.
French treaty
The French treaty is similar to that of India and Pakistan, except that it is possible for the treaty to apply to a person who is UK domiciled, so long as they are also French domiciled under French law (which is closer to a residency test) and treaty-domiciled in France under the various tie-breaker rules set out in the treaty. These tie breaker rules usually require the individual to have a permanent home and their ‘centre of vital interests’ in France. So long as these conditions are met, no IHT arises on the death of the taxpayer on assets outside Great Britain.
However, French estate duty needs to be considered. The rates vary between 0-60% depending on the value of the estate and the relationship of the beneficiary to the deceased. French/UK clients should carefully consider whether the UK or French tax regimes would be preferable in their own particular circumstances.
Clients should be aware of the often-overlooked trap known as the ‘Proper Law Rule’. The treaty IHT exemption does not apply to any assets which are subject to English succession law on a person’s death. This is also true for the Indian and Pakistani treaties, but it is easier to fall foul of the law in France and Italy, as the European Succession Regulation allows a British national to elect in their Will that English law applies to their European assets. This election should not be included without due consideration and English law worldwide Wills should be avoided. In simple terms, clients should ensure that assets situated outside of Great Britain are dealt with under local Wills.
Italian treaty
IHT exemptions under the Italian treaty are exactly the same as that of the French treaty, with the additional restriction that the treaty will not prevent IHT arising on a trust on the death of the beneficiary if the trust is governed by English law. The Proper Law Rule still applies.
However, the generous Italian estate duty rates makes this treaty more attractive than the French treaty to many clients. In overview, the Italian tax regime provides spouses and children with a €1 million allowance with estate duty payable at 4% over this value.
Protecting UK residential property from IHT
Surprisingly, it may be possible in some circumstances to protect UK residential property from exposure to IHT through these treaties. Although all four treaties expressly state that the UK has the right to tax such property, this does not extend to property held in a structure (e.g. a company). The UK domestic tax rules for “enveloped property” are complex, but clients who are long-term residents in the UK, but who still benefit from treaty exemptions (e.g. an Indian or Pakistani domiciliary) should take full advice on options available to them, as should any client whose enveloped UK residential property is subject to foreign estate tax (e.g. a US citizen).
How Birketts can assist
The pre-1975 treaties offer uniquely advantageous reliefs from IHT for many clients with close connections to India, Pakistan, France or Italy. The introduction of the long-term resident rules in April 2025 does not impact the operation of these treaties. Clients with assets in the UK and a pre-1975 treaty country should therefore consider their IHT position carefully with a view to making the most of these generous treaties.
The Birketts International Private Client team can assist clients in taking steps to strengthen their treaty IHT exemptions and to understand their exposure to IHT on their non-UK assets.
We can also provide important advice on Will drafting and succession law to avoid falling foul of the Proper Law Rule.
Please get in touch if you would like to discuss matters further.
Key Contacts
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2026.