What if I inherit money from another country?

There may be certain factors to take into account when inheriting money from overseas, particularly with relation to taxes and money transfers.

This post will answer “what if I inherit money from another country?”

In particular, we’ll discuss receiving inheritance from abroad particularly from a UK perspective.

If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or WhatsApp (+44-7393-450-837).

This includes if you are looking for alternatives or a second opinion.

Some of the facts might change from the time of writing, and nothing written here is formal advice.

For updated guidance, please contact me.

What happens if you inherit money from another country?

Although inheriting money from abroad can offer financial advantages and diversification options, there are drawbacks as well that call for careful thought and preparation.

Tax responsibilities may be impacted by your domicile status.

The whole estate of the deceased, including assets abroad, is liable to UK inheritance tax if they were a UK resident at the time of their death.

This implies that no matter where the assets are located, beneficiaries may be subject to IHT on the entire estate value.

Only the deceased’s UK-based assets, including real estate or bank accounts, are subject to inheritance tax if they were not a UK resident. In this situation, foreign assets usually continue to be free from UK IHT.

What tax do you pay if you inherit money from abroad?

The current inheritance tax ceiling, or nil-rate band, is set at 325,000 pounds.

Estates worth less than this amount are exempt from IHT. When an estate’s value surpasses this threshold, a 40% tax rate is assessed.

Regardless of the amount of the estate, transfers to spouses or civil partners are occasionally excluded from IHT.

The prospect of paying taxes on the same inheritance in two different jurisdictions can be reduced by the UK’s double taxation arrangements with different nations. Such agreements provide credits or exclusions to avoid dual taxation should both nations apply inheritance taxes.

If there is no pact, HMRC may be able to use unilateral relief to offset foreign taxes paid against any UK IHT due.

Beneficiaries who inherit assets that qualify for IHT are required to submit certain paperwork to HMRC. For instance, if the deceased had a residence outside of the United Kingdom, form IHT400 is necessary.

Despite their worth and link to the deceased, gifts received from them within seven years of their passing must be recorded since they may also be liable for IHT.

Can an inheritance be passed on without paying tax?

Any assets bequeathed to a spouse or civil partner are free from inheritance tax; the value of such assets don’t matter.

Aside from the nil-rate band, there’s a yearly IHT exemption of 3,000 pounds. This means individuals can gift up to this amount. Up to 6,000 pounds may be rolled over to the following year if not spent in full in one year.

The annual exemption covers gifts given during an individual’s lifetime; the nil-rate band covers the entire amount of an estate at passing.

A further exemption of 175,000 pounds may be applicable if a home is left to children or grandchildren, increasing the overall tax-free limit to 500,000 pounds.

Certain agricultural properties and company assets might be eligible for reliefs that lower their value for IHT purposes, thus enabling them to pass tax-free.

Another tactic to transfer assets without immediately being subject to IHT is to set up trusts. Some assets might not be included in the estate for IHT purposes, depending on the kind of trust and how it is set up.

Pros and cons of inheritance

Advantages of inheriting money from overseas

• Beneficiaries could save a lot of money on taxes.
• An inheritance from overseas might help diversify a person’s holdings by exposing them to markets and financial opportunities that might not be accessible in their own country.
• Opportunities for rental revenue or personal use may arise from inheriting assets or property in another nation.
• In contrast to local investments, there may be a chance for larger profits if the inherited assets are in developing markets or economies.

Disadvantages of inheriting money from overseas

• Tax regulations can be difficult to navigate. Both the UK and the nation where the assets are located may impose inheritance taxes on beneficiaries.
• Different nations have different inheritance laws, such as those pertaining to forced succession, which may specify how assets are allocated.
• Dealing with several legal systems when managing an inheritance from overseas can take a lot of time.
• Any income derived from inherited assets will normally be liable to income tax in the UK, even though the inheritance itself might not be taxed at first.
• Beneficiaries may occasionally be required to notify tax authorities about overseas inheritances, which might provide another level of difficulty.

How to manage Overseas inheritance

1. Speak with Experts: Because international inheritance rules and taxes are complicated, it is best to speak with a tax advisor or solicitor who is knowledgeable about both UK and foreign tax laws.
2. Evaluate How Much the Asset is Worth: Find out if the estate is valued more than the nil-rate band in total and which assets are in the UK and which are elsewhere.
3. Fund Transfer: To save costs and poor exchange rates, think about utilizing trustworthy money transfer services.
4. Compliance: Make sure that all HMRC-mandated filing rules and deadlines are met.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.