UK Inheritance Tax on Indian Property: HMRC IHT400 and the Double Taxation Treaty

The Worldwide Estate Rule

If the deceased was domiciled in the United Kingdom — or deemed domiciled under the 15-year residency rule — their entire worldwide estate is subject to UK inheritance tax (IHT). This includes every Indian asset: bank accounts, fixed deposits, insurance policies, shares, mutual funds, real estate, gold, and any other property.

This catches many families by surprise. A British-Indian national who owns a flat in Mumbai and agricultural land in Punjab may have thought of those assets as "Indian" and outside the UK tax system. They are not. HMRC treats them as part of the estate.

The current IHT threshold is £325,000 (the nil-rate band). The residence nil-rate band adds up to £175,000 if the family home passes to direct descendants. Everything above these thresholds is taxed at 40%.

Form IHT400: Disclosing Indian Assets

When the estate includes overseas assets, the executor must file HMRC Form IHT400 (the full inheritance tax return) rather than the shorter IHT205/IHT217 forms used for smaller estates. Indian assets are disclosed on Schedule IHT417 (Foreign Assets).

The form requires:

Asset descriptions and values. Each Indian asset must be listed with its market value at the date of death, converted to GBP at the exchange rate on that date. For property, this means a valuation from an Indian registered valuer — not the original purchase price, not the municipal rateable value, but the current fair market value.

Account balances. Indian bank account balances (NRO, NRE, FCNR) as at the date of death. Obtain statements from the bank showing the exact balance. Convert to GBP using the exchange rate applicable on the date of death, and keep evidence of the rate used.

Life insurance and pension values. Any Indian life insurance policies (LIC of India is the most common) pay out a death benefit that forms part of the estate unless the policy was written in trust.

Property valuation. Indian property valuations are notoriously complex. The "circle rate" (the government-mandated minimum registration value) is often significantly below market value. HMRC expects the fair market value, not the circle rate. Engage an Indian registered valuer to produce a formal valuation report; the cost varies by property and valuer.

The India-UK Double Taxation Treaty (DTAA)

India and the UK have a Double Taxation Avoidance Agreement that prevents the same asset from being taxed twice. However, the DTAA does not cover inheritance tax directly — India does not currently impose an inheritance or estate tax (it was abolished in 1985). The treaty primarily applies to income tax and capital gains.

This means the practical interaction works as follows:

No Indian inheritance tax. India will not tax the inheritance itself. There is no Indian equivalent of UK IHT.

Indian capital gains tax on sale. If the heir sells Indian property, the sale triggers Indian capital gains tax. The rate and any indexation treatment depend on the property, acquisition date, and rules in force in India. This is an income tax, not an estate tax, and arises on the sale, not on the inheritance.

UK foreign tax credit. Under Article 24 of the DTAA, any Indian income tax or capital gains tax paid on the Indian assets can be credited against UK tax obligations, preventing double taxation on the same income. However, this credit applies to income tax, not IHT — you cannot credit Indian capital gains tax against UK inheritance tax.

Net effect. The estate pays UK IHT on the full value of the Indian assets (with no Indian offset, since India charges no inheritance tax). If the heir later sells the Indian property, they pay Indian capital gains tax and claim a foreign tax credit against UK income tax on the same gain. These are separate tax events with separate compliance requirements.

Practical Steps for Executors

1. Get a date-of-death valuation for every Indian asset. Do not estimate. Do not use the circle rate. Engage a professional valuer for property and obtain official bank statements for financial assets. Keep the valuation evidence; HMRC may query an unsupported overseas valuation.

2. Convert values using the exchange rate applicable on the date of death. Keep the rate source and calculation with the estate records.

3. File IHT400 with Schedule IHT417. The return is due within 12 months of the end of the month in which the death occurred. However, IHT must be paid within 6 months of the end of the month of death — before probate is granted and before the Indian assets have been realised. This creates a cash flow problem: the tax on Indian assets is due before the estate can access those assets.

4. Apply for payment by instalments. If the Indian property cannot be sold before the IHT payment deadline, HMRC allows IHT on real property to be paid in up to 10 annual instalments. Interest accrues on the outstanding balance.

5. Coordinate with the India side. The Indian succession certificate or probated will may be needed to access the Indian bank accounts and sell the property. The succession certificate process can take months depending on the court and any objections. The property inheritance process involves a separate mutation at the revenue office. Both must be initiated early because HMRC's payment deadline does not wait for the Indian legal process to complete.

The Cash Flow Squeeze

This is the problem that blindsides most executors: UK IHT is due within 6 months of the death, but the Indian assets that triggered the tax liability cannot be liquidated within that timeframe.

The typical sequence plays out like this: IHT is calculated and becomes payable → the executor applies for probate in the UK → probate is granted but the Indian assets are still locked behind a succession certificate application → the executor must either pay IHT from UK assets (potentially draining the liquid estate) or apply for instalment payments and accept the interest charges.

A cross-border tax advisor who understands both the HMRC timeline and the Indian legal process is essential. The UK-India Family Emergency Guide maps both timelines onto a single workflow so the executor can see where the pressure points are and plan accordingly.