Inheritance Tax from around the world: A quick guide
Receiving inheritance can be an emotional but also stressful event in one’s life, and therefore making sure these valued funds are transferred smoothly and cost-effectively is important.
You will have to declare the inheritance you are receiving from abroad, so be sure to always check with your local tax authorities to avoid fines and complications.
The tax levies you will be subject to payment on the inheritance will depend solely on what country you are living in. Some countries have vastly different approaches when it comes to inheritance tax.
Furthermore, If your inheritance needs to be moved overseas, you will need to be aware of the costs involved. You could stand to lose much from your inheritance on moving the funds overseas alone due to poor FX rates and high fees charged by most high street banks. Companies like Fexco International Payments, which specialises in overseas transfers, will offer more competitive rates leading to significant savings when you are completing your transfer.
We will discuss the best way to keep more of your money when transferring overseas later in this article.
— Please note: The content used in this article is for informational purposes only and does not constitute legal or commercial advice. We would strongly advise that you consult the links to official sources were mentioned herein and are satisfied with the research you have taken independently.
What is an Inheritance Tax?
Inheritance tax is levied on the estate of a deceased person’s assets. Inheritance can be a multitude of assets: savings, property, investments, and ongoing payments from life-insurance policies.
The amount of tax you will pay as the beneficiary will solely depend on the relationship you had with the deceased and where you reside..
Every country has a different approach when it comes to taxing inheritance. There is a different inheritance threshold for the maximum one can receive tax free throughout their lifetime.
We will be looking at inheritance tax in:
Inheritance tax in Ireland
If you are living in Ireland for 5 years or more you are seen as a resident, you will be subject to pay Irish Capital Acquisitions Tax on inheritance you receive from overseas.
According to Citizens Information, if you are a resident of Ireland, you must pay tax on all income you receive, this includes income abroad.
If you are residing in Ireland, one thing to check out is claiming a double taxation credit relief. You may be able to reduce the tax you pay within Ireland when it comes to bringing inheritance funds from overseas. As of 2022, Ireland has a double-taxable agreement with 73 countries worldwide.
It is the reasonability of the beneficiary to pay the inheritance tax they receive. Within Ireland, there are three categories of inheritance grouped into A, B, and C.
See the table below of the maximum amount beneficiaries can inherit throughout their lifetimes.
|November 2022||Group A||Group B||Group C|
Once these thresholds are met, there is a standard rate of 33% of Capital Acquisitions Tax (CAT) to be paid for gifts and inheritance.
As a child of the disponer (including stepchildren and adopted) the maximum amount you can inherit from a parent tax free in Ireland is €335,000 in your lifetime, any amount after is taxed at 33% of CAT.
For example, we look to use Mary as an example for inheritance in Group A.
- Mary is inheriting a property worth €500,000 from her mother.
- The threshold is €335,000 which is tax free for Mary to inherit throughout her lifetime from her parent(s).
- The remainder €165,000 will be taxed at 33%.
- Mary will pay €54,450 back for the inheritance which is deducted from the €500,000 which leaves Mary with €445,550.
Group A(2) – “Favourite” Niece or Nephew
Group A also includes exceptional cases for “favourite” nieces and nephews. They must be a blood relation and have a vested interest in the business the disponer owned in order to be a beneficiary. This niece or nephew must have worked in the business for a minimum of 5 years, for a minimum of 20 hours per week to be seen in the category A group.
Group B consists of beneficiaries that are a Grandparent, Grandchild and Great-grandchildren, brother or sister, nephew or niece. The maximum amount you can receive tax-free in your lifetime is €32,500. Anything over this amount is subject to 33% CAT.
Group C is applied to any relationship that is not categorised in Group A or B. This can be a friend or an in-law through marriage. €16,250 is the tax-free amount a person can inherit classified in Group C.
Inheriting from the United Kingdom
If you are a UK national living abroad, the inheritance tax to be paid will only be for UK assets. Examples of UK assets are property or bank accounts that reside in the UK.
If you are a foreign national living in the UK and the inheritance you are receiving is from abroad, you may still be subject to pay inheritance taxes to HMRC (HM Revenue & Customs).
As mentioned above double taxation treaties exist to protect assets being taxed by two governments. Be assured to research if your home country and the UK have a signed double-tax agreement to avoid being taxed twice on receiving the same overseas inheritance. The UK has signed treaties with the United States, The Netherlands, the Republic of Ireland, France, Italy, South Africa, and many others.
In the current tax year of 2022/23 in the UK:
- The first £325,000 is tax free, any amount after is taxed at 40%
- If the disposer is gifting their home to a child (adopted or fostered, stepchildren or grandchildren) this threshold can be increased to €500,000.
The beneficiaries normally do not pay the tax on inheritance, it is the responsibility of the executor of the will to ensure the inheritance tax is paid from the estate.
If this inheritance includes an asset that generates income, then the beneficiary is responsible for paying capital gains tax on any new income generated. I.e., a rental property
Inheritance in United States of America
If you are a US citizen or a green card holder you are expected to report any inheritance you receive from overseas to the IRS (Internal Revenue Service).
If you are inheriting overseas assets that exceed $100,000, you are expected to document this in Form 3520 (annual return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) to the IRS, to avoid penalties. Failure to report a filing of Form 3520 can result in a hefty penalty of 35% of gross inheritance.
When it comes to inheriting from overseas, the IRS does not have the authority to tax foreign estates. The tax to be paid on the inheritance will be the responsibility of the disponer and their countries’ laws on inheritance.
It is important to note, depending on what state you are residing in within the US, there might be inheritances taxes to be paid if you the disponer are a US citizen living overseas. It is best to check this out with a local authority in your state to avoid penalties.
Living abroad as a US citizen
Many American expats may think that once they are living abroad, they will not have to report to the IRS for new foreign financial income. The IRS monitors American money overseas, if you inherit while living abroad you may still have to report your recent inheritance to the IRS.
You will still be obliged to report foreign financial assets as an American ex-pat and to file a Report of Foreign Bank and Financial Accounts FBAR.
Inheritance Tax in Australia
There is no inheritance tax in Australia. Overseas inheritance is treated the same way, there is no tax to be paid to receive inheritance if you are living in Australia.
However, if the asset you are receiving is generating an income you will be subject to pay:
- Capital Gains Tax: if you sell the asset, you have inherited you will be subject to pay CGT.
- Income tax: will still be applied if the asset you’re inheriting is generating income, i.e., a rental property, dividends from stocks, and interest on savings.
Inheritance Tax in Canada
As with Australia, there is no tax to be paid on inheritance.
If the disponer is a non-resident of Canada who is from overseas they are treated the same as Canadian citizens, the (CRA) Canada Revenue Agency will only tax the disponer. The executor must submit the tax return on behalf of the deceased.
There is no inheritance tax on real estate or land in Canada. Gifts from friends and relatives are also tax-free. Most inheritances do not have to be reported to the CRA, as there is no tax to be paid. Circumstances where this change is if they sell the asset or if the asset is generating income, they are subject to pay CAT.
What is the best way of moving your inheritance overseas?
When it comes time to move your inheritance overseas, please be aware that FX markets are continually changing. If you are exchanging currency, the rate you receive from a typical high street bank may not be as competitive as that of a specialist provider leading unnecessary losses.
Competitive Foreign Exchange Rates
Get advice from a currency transfer specialist, Shopping around for the best FX rate can mean big savings on repatriating these funds from another country. Money transfer specialists like Fexco could make a difference by helping you save thousands and make the process easier compared to a traditional bank.
High street banks are known to typically charge high exchange rates for international money transfers, sometimes between 3 and 5% more on the exchange rate. There may also be additional fees meaning you could pay substantially more for your transfer.
If you are receiving a large inheritance of over €100,000, it is so important to shop around to get the best foreign exchange rates if your plan is to transfer it overseas. Please be aware of how volatile foreign exchange markets can have an impact on the amount you receive, it may not always be in your favour.
If you are converting a £100,000 inheritance from GBP to EUR, the table below illustrates the difference between a traditional bank service and that of a specialist FX provider like Fexco.
|14TH NOVEMBER 2022||FEXCO||TRADITIONAL BANK|
You would have received €5,800 less if you had used the services of a typical high street bank! This does not include the extra fees the bank will charge for the transaction.
Fexco also provides forward contracts which allow you to lock into an exchange rate based on today’s price for either a fixed date in the future or between two specified dates.
This type of contract allows you to reduce or eliminate your exposure to the potential for adverse exchange rate fluctuation – thereby giving you certainty and peace of mind of the value you will receive.
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And finally ..get advice from the experts
If you are receiving an inheritance from overseas, our best advice is to seek the advice of an accountant, solicitor or a professional in the tax laws of the country in question. Protect your inheritance from any unnecessary complications and when it comes to moving the proceeds back home, give us a call.
Fexco provides bank beating FX rates and lower fees than a typical high street bank when moving funds overseas. When you need to transfer money to your local bank account swiftly and securely, talk to us for the best advice or sign up to view competitive rates from our online platform. If you would like to discuss your options with a transfer specialist then, reach out and let us know your requirements.