UK Inheritance tax if parents live in Australia?
 

Hi,

My parents moved to Australia and have been citizens for a few years (they love it!).

They are offering to give me and my 2 sisters (1 in Australia and 2 in UK) some early inheritance.

Apparently there's no inheritance tax in Australia (?) Does anyone know if there are any tax implications receiving the money in the UK (and does it matter if it comes from a UK bank account that they kept in the UK)?

Thanks for any help!!!!

Den

Re: UK Inheritance tax if parents live in Australia?
 

I think you need to get advice both for you and your parents (unless the sums involved are small. I believe that if a gift is made then under some circumstances the donor will have to pay income tax as if the money is still theirs: it's deemed to still be their asset. I may well be wrong but check it out.

Re: UK Inheritance tax if parents live in Australia?
 

Even if your parents were still in the UK, there would be no tax implications of gifts provided they survive for a certain number of years afterwards.

What you should all be aware of here, is that UK Inheritance tax depends upon domicile, not tax residence, and it is very hard to change domicile. One has to be out of the UK for 17 years before there is even a chance. So your parents going to Australia and becoming citizens does not mean they have lost UK domicile and UK IHT can therefore kick in.

Re: UK Inheritance tax if parents live in Australia?
 

Not so. My parents moved to the Isle of Man and were resident there about 14 years before they died. They counted as IOM residents and had no UK inheritance tax to pay although my father still paid UK income tax on a pension. They paid most of their tax in the IOM at IOM rates.

Re: UK Inheritance tax if parents live in Australia?
 

You are right, the 17 years thing applies to something else to do with domicile. However the point remains that one's domicile does not automatically change once somebody moves overseas, there is a bit more to it.

I was not talking about income tax on income during one's life time. The conversation was about inheritance tax. Income tax depends upon tax residency and inheritance taax depends upon domicile. And residency and domicile are very different things.

Re: UK Inheritance tax if parents live in Australia?
 

Domicile changes when you permanently settle in another country without an intention to return to the UK. In other words, move to Australia on a PR visa, become an Australian citizen, acquire permanent property in Australia, make your will under Australian law, and so on.

Deemed domicile in theory catches some non-UK domiciled persons for inheritance tax by deeming them to be UK-domiciled anyway:

- for 3 years after losing UK domicile, or
- if resident in the UK for 17 out of the last 20 years.

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM13024.htm

Not many people fall into these categories without being UK-domiciled anyway.


Another thing to remember about UK Inheritance Tax is that even if you become non-domiciled, it will always catch your UK assets, although may be offset by the nil rate band.

Additionally, anyone obtaining property this way must also consider future Capital Gains Tax on disposal and find out what the base cost will be deemed as.

Re: UK Inheritance tax if parents live in Australia?
 

If your parents moved to Australia and they were to pass away, any assets in the UK would have to be subject to UK probate. A part of that process before it is released is to assess inheritance tax due.

Any assets in Australia will be received free from any Australian tax in any instance, however probate would need to be obtained in the State Supreme Court there as well to cover those.

JAJ is quite correct. Essentially after three years away from the UK its relatively easy to prove they are not domiciled in the UK for tax purposes. If they had left the UK for a lessor time then the UK may be entitled to Inheritance tax on both the UK assets AND the asset value in Australia. Any asset in the UK though will have to be assessed for inheritance tax regardless and will be payable on any amount over the threshold.

Be very careful when making a gift though. Should your parents, whilst still with you, make a gift there could be other tax implications unrelated and you should seek professional tax advice.

I've had to navigate the minefield myself whilst sorting out the estate of my mother in law who passed a year ago. I can only say that getting professional advice was worth it, for without it we would have been liable for a huge amount of tax in the UK.

Re: UK Inheritance tax if parents live in Australia?
 

Thanks for all the advice! I'll get professional help as suggested but it's useful to know some of the things to check

.. like domicile status (hopefully Australia as they're citizens with a permanent home for 5yrs+ and nothing in the UK, except the bank account which is small and under the nil rate band, but good to know to check if that has any implications).

Thanks for the warning UK assets apply regardless.

Seeing other taxes can apply to gifts it's clearly a minefield so if I get the advice to work through it, I'll post the outcome for anyone wanting to find out the same..

Thanks again