One of the more overlooked consequences of the UK’s new inheritance tax (IHT) regime is that, although the concept of domicile has now been abolished and replaced with the long-term residence rules from 6 April 2025, domicile still matters enormously for estate treaty purposes in certain jurisdictions.
This is particularly relevant for Indian clients because the UK–India estate tax treaty continues to operate by reference to domicile concepts rather than the UK’s new long-term residence framework.
As a result, it is now possible for an individual to become a long-term UK resident for domestic IHT purposes whilst still remaining domiciled in India under general law and treaty principles. With proper planning, Indian clients may therefore still be able to rely on the treaty to shelter non-UK assets from UK IHT, despite many years of UK residence.
Most advisers are familiar with this principle in the context of foreign assets and the requirement of having separate non-UK wills to cover these specific assets. However, the interaction becomes much more interesting when UK residential property is held through a non-UK company.
Before 2017, offshore companies were widely used to hold UK residential property because the individual owned foreign shares rather than the property directly. The UK largely shut this down by introducing rules which treat shares in non-UK companies deriving value from UK residential property as UK situs assets for IHT purposes.
However, in the case of Indian domiciled individuals there is a real technical oddity in the interaction between these residential property rules, the excluded property regime, and the UK/India estate taxes treaty.
For an Indian domiciled individual who is not yet a long-term resident for UK IHT purposes, foreign shares would ordinarily constitute ‘excluded property’. However, specific UK legislation removes excluded property treatment where those shares derive their value from UK residential property. In effect, the offshore shares are brought back into the UK IHT net.
But the position can become more favourable once the individual actually becomes a long-term resident. At that point, the shares are no longer relying on excluded property treatment at all because the individual is already within the UK’s worldwide IHT charge. Arguably, the legislation therefore has nothing to disapply and the analysis instead falls back onto the treaty itself. Under the UK–India treaty, shares in a non-UK company remain foreign situs assets, meaning the treaty can potentially restrict the UK’s taxing rights in spite of the domestic residential property deeming provisions.
The result is a genuinely unusual outcome: an Indian domiciled individual who is not yet long-term resident may have weaker protection than someone who has already become long-term resident in the UK but remains Indian domiciled for treaty purposes. It is a striking example of how the UK’s domestic anti-avoidance legislation and older treaty provisions do not always fit neatly together.
This remains a highly technical area and one which is unlikely to be free from HMRC scrutiny or future challenge. The interaction between the UK’s long-term residence regime, treaty domicile concepts, excluded property rules and the residential property provisions is complex and fact-sensitive. Careful advice should therefore be taken on long-term residence status, the preservation of Indian domicile under general law and treaty principles, ownership structuring, and the coordination of UK and non-UK wills before any reliance is placed on treaty protection.
The interaction between the UK’s new long-term residence rules and the historic UK–India estate tax treaty is a classic example of how "one size fits all" wealth planning completely breaks down. Because this specific property quirk is highly technical and bound to draw HMRC scrutiny, generic advice won't cut it.
At Sanctuary, we specialize in cross-border structuring and navigating the friction between domestic anti-avoidance laws and international treaties.
Visit our Tax & Advisory service page to find more about our tax & residency advisory services, or contact us for a bespoke consultation via the contact form or email us at: hello@sanctuary.ae.
For UK businesses considering opportunities in Saudi Arabia, the following steps outline the overall process:
1. Business Activity: Determine the appropriate business activity which will aligns with your business and satisfies all undertakings you will engage with in the Kingdom.
2. Local Partnerships: Consider any potential opportunities for collaborations with established local businesses to ease market entry and meet regulatory requirements.
3. Documentation: Gather the required documentation for incorporation in KSA.
4. Company Registration: Work with experts and the relevant governing bodies to assist with the incorporation process, ensuring compliance with local laws and regulations.
5. Other Requirements: Consider any other requirements for establishing in Saudi Arabia such as capital and tax requirements.
Saudi Arabia's Vision 2030 represents a significant opportunity for UK businesses to engage with an expanding market with vast potential. As the Kingdom continues to diversify its economy and expand its global influence, UK companies are well-positioned to support and benefit from this transformation. With the right strategy, partnerships, and local support, there are a wealth of possibilities.
By aligning your business with Saudi Arabia’s Vision 2030, the benefits for UK and international businesses looking to Saudi Arabia have never been greater.
At Sanctuary, we specialise in assisting businesses looking to expand into Saudi Arabia. We help navigate the complexities of the Saudi market, ensuring that you have the expertise needed to best prepare for success, so get in touch today.
Our expert team offers comprehensive support across a range of services, from company registration, advisory services, and more. Explore our services to discover how we can help you.
Vision 2030 is a strategic framework designed to diversify Saudi Arabia’s economy, reduce its dependency on oil, and transform the Kingdom into a global business hub.
Key points include economic diversification, social reforms, investment in technology and infrastructure, sustainability, and creating a competitive workforce.
The main focus of the Saudi Arabian Vision 2030 strategy is to build on key economic sectors such as hospitality, travel and tourism and build economic stability and sustainability.
Saudi Arabia’s Vision 2030 initiative is aimed at diversifying its economy through strategic investments into the non-oil sector and ensuring a more sustainable economic future.
Saudi Arabia has committed over $500 billion to Vision 2030, funding projects that span a variety of sectors, including energy, tourism, and infrastructure.
Yes, with its growing economy, reform initiatives, and investment incentives, Saudi Arabia is a highly attractive destination for foreign businesses seeking growth opportunities.
Key growing industries include renewable energy, tourism, healthcare, technology, and education.
Saudi Arabia permits foreign owned businesses and investment into the Kingdom, which has been elevated by the Vision 2030 initiative. A MISA licence is required for foreign investors or businesses to establish.
As a result of the diversification efforts of Saudi Vision 2030, the non-oil and private sector in the Kingdom have witnessed unprecedented growth in the past few years. The private sector continues to grow each quarter and the non-oil sectors continue to reach record contributions for the Kingdom’s GDP.
