Guide to moving your inheritance abroad
If you’ve inherited money from abroad, there may be inheritance tax on the estate of the deceased. These taxes are often acquired from the estate itself and are paid by the executor to the government where the assets are held. However, tax structures vary from country to country and beneficiaries may need to file additional forms to prevent double-taxation.
While every effort is made to ensure this content is up to date and accurate, this information provided by OFX does not take into account your specific financial objectives and requirements. All beneficiaries of an inheritance from abroad must seek specific advice from tax professionals in the applicable local jurisdiction/s to ensure that all applicable taxes are paid in a timely manner. OFX does not provide tax (financial) advice.
What Are the Potential Tax Implications of Your Inheritance?
When it comes to inheritance from overseas and tax implications, it all depends upon where you live. Different countries have varying tax laws, and everything from the inheritance tax threshold to the steps involved in calculating inheritance tax can vary. Overall, it can be complicated to receive an inheritance from someone whose residence was in another country to you, especially if you are not aware of recent inheritance tax changes or how to go about inheriting property from abroad.Below is an outline of the potential inheritance tax implications for individuals living in Australia, the United States, or the United Kingdom.
Inheritance Tax in Australia
According to the Australian Taxation Office website, “There are no inheritance or estate taxes in Australia.” However, the site also states that “There may be some tax obligations for beneficiaries, depending on the nature of any distribution they may receive.”
According to H&R Block, if you reside in Australia and you receive inheritance money from abroad, beneficiaries do not need to pay additional taxes unless specified by the executor. However, if you end up investing any of the income that you receive from the estate, your earnings may end up being taxable.
Even though Australia currently does not have an inheritance tax, there are some specific financial transactions that may still be taxed. Following an individual’s death, his or her estate could keep making an income from things like interest on savings accounts, capital gains from asset sales, or dividends from stocks. In these cases, a trust tax return will be due on any of the income that is taxable, and the tax has to be handled by the beneficiaries or the executor named in the will. A trust tax return must be filed every year until the estate is fully administered, meaning all assets have been distributed to the beneficiaries. If the estate is resolved during the year of death, there are some exemptions from the trust tax return if the income thresholds are low enough.
It is also important to note that inheritance law will vary between territories and states throughout Australia. You should get in touch with your local Public Trustees office to determine the rules that apply to your territory or state.
Individuals who live in Australia and are unclear of their taxation responsibilities can check the Australian Taxation Office’s website. You should also contact a qualified accountant to have all of your questions answered and to ensure you pay any necessary taxes when they are due.
Inheritance Tax in the United States
If you are living in the United States and you receive an inheritance from overseas, both state and federal estate taxes might apply, and you will be required to declare any assets that are transferred from outside of the country into your local bank account.
A federal estate tax will apply to any estate of a U.S. citizen or U.S. legal resident, even if their place of residence is outside of the country. Therefore, when you receive an inheritance from an individual who is a U.S. citizen but has assets (accounts, investments, and property) abroad, his or her estate will be subject to taxes in the United States.
It is also important to be aware of the inheritance tax exemption in the U.S. For example, in the event that you inherit foreign assets from an individual who is not a resident or citizen of the United States, you may not be subject to the estate tax. Just keep in mind that the foreign nation might collect an inheritance tax on the assets instead or well. Use Form 3520 to declare the transfer of gifts or property from a foreign person. Declaring the gift should not subject the assets to estate or income tax, but you may incur heavy fines if you do not declare the assets.When you get an inheritance from another country, if you end up paying taxes to a foreign nation to receive that inheritance, you could declare what you paid on your U.S. tax returns by using Form 706-CE. Many countries have Double Taxation Treaties, and if the executor can demonstrate that the tax has been paid elsewhere, you may be able to avoid double taxation.
Inheritance Tax in the United Kingdom
If you are living in the United Kingdom, whether or not you will have to pay an inheritance tax will depend upon where the deceased was domiciled, whether there are excluded assets, where the deceased’s assets are located, and whether the assets were placed into a trust (also known as settled).
An individual can be considered domiciled out of the U.K. if he or she is at least 16 years old and has settled permanently abroad. HM Revenue and Customs (HMRC) will only recognise a change of domicile when there is evidence that the individual who moved away planned to live in another country indefinitely. Owning real estate, sending children to school overseas, and working abroad would all indicate a change of domicile.
When an individual from the U.K. moves to another country, HMRC is still going to consider the United Kingdom as that person’s official domicile, particularly for purposes of inheritance tax, if he or she lived anywhere in the United Kingdom for 17 of the previous 20 years. HMRC can also continue treating someone as domiciled in the U.K. if he or she had a permanent home within the U.K. at any point in the last three years of his or her life.
Double taxation treaties are in place to prevent assets from being taxed by two governments. The U.K. has double taxation treaties in place with the U.S., Republic of Ireland, South Africa, The Netherlands, Sweden, and Switzerland. France, Italy, Pakistan, and India have slightly older treaties with the U.K. with different rules.
If the deceased was domiciled abroad and you (a U.K. resident) receive an inheritance, you will most likely only need to pay the tax on any U.K. assets that you receive, such as money from U.K. bank accounts or real estate. Also, if there are settled assets that are located outside of the U.K., they will be subject to the inheritance tax only if they were put into a trust during the time in which the settlor was still domiciled in the U.K.
Inheritance tax will not be required on what are known as excluded assets. These include overseas pensions, foreign currency accounts with the Post Office or with banks, and holdings within an open-ended investment company or authorised unit trust.
Always speak to a local tax expert to confirm your inheritance tax obligations.
What Are the Rules Surrounding Inheritance Tax on Gifts of Property?
In addition to receiving inheritance money from abroad, in the form of a bank account inheritance for example, you might also end up inheriting real estate from someone who lived overseas. In this case, you will need to be aware of the inheritance tax rules that would apply to you, on top of knowing the basic inheritance process steps that you will need to take in your country.
Inheriting property in Australia
If you are a resident of Australia and you receive assets as part of your inheritance, you may be responsible for paying a capital gains tax (CGT) when you sell the asset. Therefore, you will not have to pay this tax when you actually receive the inheritance as a gift.
Inheriting property in the United States
If you are a resident of the United States and you receive any type of property in the form of a bequest, you will need to include that inheritance on Form 3250 if the gifts from the foreign estate or non-resident alien are valued at over USD$100,000. And if you receive multiple gifts from multiple related parties, you will need to aggregate those gifts on this form, provided that they add up to more than USD$100,000.
Inheriting property in the United Kingdom
If you are a resident of the U.K. and you inherit property, you will not have to pay a capital gains tax, income tax, or stamp duty on reciept of that property. However, you might be responsible for the inheritance tax if the deceased’s estate does not cover it. Also, if you sell the property and it has not become your main residence, you will pay a capital gains tax if you make a profit from the sale. You will also be responsible for a tax on rental income if you rent out the property. And you may need to pay taxes if you receive property that is held in a trust and you make an income from that trust.
What Is a Good Way to Repatriate Your Overseas Inheritance?
Whenever you inherit money from overseas, you may need to transfer it to your local bank account swiftly and securely. Unfortunately, banks often charge margins of up to 5% above the daily exchange rate. So on a transfer of $100,000, you could pay up to $5,000 to your bank. At OFX, we think that’s too much. When you use OFX,we offer bank beating rates so you can keep more of your inheritance.
Of course, you can also use OFX for transferring the proceeds of sales overseas, such as collectibles, jewelery, or property. Many of our customers use OFX to transfer their pensions, savings, or investments as well. Limit Orders and Forward Exchange Contracts can help you lock in a target exchange rate, so you will know exactly how much you will receive, even if it takes months to settle the estate.
Check Your Local Tax Laws and Speak with Experts for Accurate Advice
Ultimately, when it comes to receiving an inheritance from overseas, the taxes that you will be liable for will depend upon the country that you are living in. Therefore, it is best to check local tax laws and speak with an accountant or financial adviser who has experience in inheritance planning. In this way, you can protect your inheritance from hefty fines and unnecessary complications.