Guide to Moving Your Inheritance Abroad

Almost everything you need to know about the repatriation of an overseas inheritance

 

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.⁺

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.¹ 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.² 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.

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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.³ 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.⁴ 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.

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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).⁵

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.⁶

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.⁵ 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.⁷

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.⁵

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.⁵

Always speak to a local tax expert to confirm your inheritance tax obligations.