Are you someone who lives in the UK with family member who live abroad? If so, and there are plans for you to inherit money from abroad, there are tax implications that you will need to be aware of. This is because there may be liability under UK rules.
How Does Inheritance Work From Overseas?
This can be a complicated process, so it’s always best to look into what receiving inheritance from abroad entails from a tax point of view. In order to make sure you follow the key steps, seek expert help. This will give you peace of mind and ensure that every box is ticked.
The rules for UK residents
To help you understand what receiving inheritance from overseas entails, it’s worth taking the time to find out what rules apply in this case. Begin with what inheritance tax is. This is the tax that’s payable on net value of an estate. An estate typically covers the property, money and the possessions of someone who has died.
However, inheritance tax doesn’t always apply. According to Government rules, Inheritance Tax doesn’t usually have to be pad if the value of the estate is below the £325,000 threshold or everything above the £325,000 threshold is left to the person’s, civil partner, a charity or a community amateur sports club. If you stand to benefit, either as executor of a will or as next of kin, inheritance tax may be applicable.
In the case of receiving inheritance from abroad, what happens with the estate depends on the deceased person’s domiciled status and location of their assets. Domicile is the legal term for where a person considers to be their permanent home, and this can be different from their country of origin. It can also be different to the country they live in.
If the deceased’s domicile is abroad, you generally won’t have to pay inheritance tax. Each case is different, so it’s important that if you think you could stand to inherit some or all of a person’s estate and they’re not in the UK, you speak to an expert who can advise.
As part of this process, you may have to prove the validity of the will. In the cases where no will was made, there’s then the process of establishing who is entitled to the estate under intestacy rules. Again, seek advice before you proceed.
Claiming tax relief
If the person who has died is domiciled in the UK, but they owned assets abroad, you will need to pay UK tax if the inheritance meets the criteria for tax to apply. However, depending on the person’s domiciled status and where their assets are located, they may also be tax implications in another country to factor in.
However, there are several bilateral double tax conventions here in the UK. This means that you can claim tax relief through a double taxation treaty, where the estate is liable to be taxed twice. Here, there are rules in place to prevent a person being taxed by two countries.
Should there be no double taxation agreement between the country the deceased resided in and the UK, you may be eligible for Unilateral Relief. This is where the HMRC gives credit against inheritance tax for the tax charged by the other country on the assets belonging to the deceased in that country.
While it seems to be a potentially convoluted process, it can be easier to hand this over to the experts.