Find out about the rules and potential tax consequences of receiving inheritance from abroad.
What happens if I receive an inheritance from abroad?
If you receive an inheritance from an estate comprising foreign assets, or where the deceased lived abroad, there may be UK tax consequences for the estate, reducing the amount of your inheritance.
Inheritance tax is usually a payment due from the estate of the person who has died, although it may also be payable by the recipients of lifetime gifts, that have become chargeable as a result of the death. It is payable to HMRC, and may be due even if the deceased did not have any assets in the UK.
When is inheritance tax due on an inheritance from abroad?
If you have received an inheritance from abroad, you should consider whether the correct amount of inheritance tax has been paid in the UK. Inheritance tax is payable by the estate if:
- the person who died was ‘domiciled’ (permanently resident for tax purposes) in the UK; and/or
- the person who died left you assets within the UK (such as a property or a UK-based bank account for example).
If you have any concerns about whether either of the above criteria apply in your situation, it is best to take expert advice at an early stage. A solicitor specialising in estate administration can discuss the specific requirements with you and advise you as to the tax implications.
Domicile rules in the UK
If someone dies whilst ‘domiciled’ in the UK, inheritance tax may be payable on their estate – even if they were living in a different country at the time of their death. You can only have one domicile.
If the deceased was domiciled in the UK from birth (which is generally the case if their father was UK domiciled) then they will usually retain this status even if they move to live abroad, unless they emigrate with the intention of cutting all ties with the UK. This is known as acquiring a domicile of choice.
If the deceased was born with a foreign domicile, HMRC will consider them to have acquired a deemed UK domicile if:
- they lived in the UK for 15 of the last 20 years of their life
- their permanent home was in the UK at any time in the last 3 years of their life.
It's important to note that the above rules do not apply for returning UK-domiciled people. Where someone with a UK domicile at birth, acquires a non-UK domicile of choice, then, upon returning permanently to the UK, they will immediately reacquire their UK domiciled status. Similarly they will usually lose their UK domiciled status if they subsequently leave the UK (at the end of that tax year).
There are additional provisions for dependants and persons married to those with a UK domicile.
What is the effect of domicile on tax?
Generally speaking, the tax rules of the country in which the deceased was domiciled will apply upon their death.
Where the deceased was domiciled in the UK at the time of their death, their estate will be subject to inheritance tax on their worldwide assets. If the deceased owned assets abroad, there may also be inheritance tax (or its local equivalent) to pay in the country where the property is situated.
Conversely where the deceased was domiciled outside of the UK at the time of their death, their estate will only be subject to inheritance tax on the value of their assets situated in the UK.
Double taxation on an inheritance from abroad
Other countries have their own rules relating to inheritance tax (or their equivalent). There is a risk that tax could be payable both in the UK and abroad on the same assets. This is referred to as ‘double taxation’.
In cases of double taxation, the amount of the estate ultimately passing to the beneficiaries may be significantly reduced. Fortunately, the UK has entered into double taxation treaties with some countries (including Ireland and the USA) to help mitigate any additional tax liability. These agreements make allowances for the country in which the deceased was domiciled, to tax all worldwide property and for the other country to only tax specific types of assets, such as immoveable property (e.g. land) situated in that country.
Where a taxation charge arises in both the UK and a country where no such treaty is in place, relief may still be available under the ‘unilateral relief’ scheme, whereby the UK will give credit for any tax paid abroad.
Inheritance tax solicitors and advice
Tees has specialist inheritance tax solicitors who can help you:
- if you are moving abroad and need to write or change your Will
- if you are an executor dealing with an estate involving assets abroad
- if you have received an inheritance from abroad and need advice about the tax implications
- if you are the recipient of a lifetime gift and the person making the gift has passed away
- if you have received an inheritance from abroad and there was no Will in place.
Call us on 0800 013 1165 or contact our inheritance tax team online if you need advice about an overseas inheritance tax issue