In an increasingly globalised world, it’s not uncommon for Australians to inherit overseas assets. While this may be a windfall, it can also bring a variety of legal and tax implications.
Understanding how overseas inheritance tax works in Australia is crucial for managing such assets wisely and legally.
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What is Overseas Inheritance Tax, and How Does It Apply to Australia?
Inheritance tax is a levy paid by a person who inherits money or property or a levy on the estate of a person who has died.
The applicability and rate of inheritance tax vary from country to country. While Australia does not have a specific inheritance tax, overseas jurisdictions may impose an inheritance tax on assets located in their territory.
If you’re an Australian resident and inherit overseas assets, you may be subject to the inheritance laws and taxes of the country where the asset is located.
Subsequently, these inherited assets may also be subject to taxation in Australia, depending on their nature and your use of them.
Read more: Roles of a Will and Trust Attorney in Practice
Are Australians Liable for Inheritance Tax on Assets Inherited from Overseas?
As an Australian resident, if you inherit overseas assets, you are not subject to an inheritance tax in Australia, as it doesn’t exist here.
However, the jurisdiction where the deceased lived or where the asset is located may impose its inheritance tax.
For example, if you inherit property from a relative who lived in the UK, you may be required to pay inheritance tax in the UK.
It’s essential to seek advice from an international tax expert or legal professional to understand your obligations.
Read more: Benefits of Family Trusts and Wills
How Does Double Taxation Agreement Impact Inheritance Tax for Australians?
Double Taxation Agreements (DTAs) are Australia’s international agreements with over 40 countries. These agreements prevent the same income from being taxed twice – once in the source country and again in Australia.
While DTAs can provide relief from being taxed twice, it’s essential to note that not all countries have a DTA with Australia.
Furthermore, inheritance tax is not typically covered by these agreements. As a result, you could still be liable for taxes overseas and in Australia.
Read more: The Fate of Your Superannuation Upon Death
What Steps Should I Take if I Inherit Overseas Property as an Australian Resident?
Inheriting an overseas property as an Australian resident can be a complex process, involving legal, tax, and practical considerations both in the country where the property is located and in Australia.
Below, we further break down the steps you should consider taking upon inheriting overseas property:
Understand the Local Inheritance Laws
Each country has unique laws regarding inheritance. For example, some jurisdictions operate under ‘forced heirship’ rules, which dictate how an estate must be distributed among heirs, often contrary to the wishes expressed in a will.
Other countries may require that the will is validated in a local court or through a specific legal process before it can be executed.
In addition, some countries impose an inheritance or estate tax on the deceased’s assets, including real estate. You must understand the rate at which this tax is levied and any applicable exemptions or relief.
Seek Professional Advice
Given the potential complexity and high stakes, seeking professional advice is prudent. A will and estate lawyer familiar with the property’s local law can provide insights into inheritance laws and the process of claiming the property.
If you consider selling the inherited property, a local real estate agent can advise on the country’s market conditions and selling process.
Furthermore, a tax advisor or accountant knowledgeable about international tax matters can guide the tax implications in the local jurisdiction and Australia.
Management of the Property
Once you have claimed the property, you will need to manage it. This can involve several considerations:
- If the property is leased, you will need to understand the terms of the lease and your obligations as a landlord under local law.
- If the property is vacant, consider renting it, using it personally, or selling it.
- Regular property expenses such as utilities, property taxes, maintenance, and insurance must be handled.
- Australian Tax Obligations
- If the property generates an income (for example, through rental income), it must be declared in your Australian income tax return, even if it is taxed overseas. You may be entitled to a foreign income tax offset in Australia if you have paid tax on this income overseas.
When you sell the property, you may need to pay capital gains tax in Australia on any profit you make from the sale, regardless of whether you also pay tax overseas.
The cost base for calculating the capital gain is the property’s market value when you inherited it.
Can Overseas Inheritance Affect My Australian Tax Obligations?
While Australia does not have an inheritance tax, an overseas inheritance could impact your Australian tax obligations.
If the inherited asset generates income, such as rent from a property or dividends from shares, this income is usually taxable in Australia. If you sell the inherited asset, you may also have to pay capital gains tax in Australia.
Do I Need To Pay Capital Gains Tax When I Sell the Property I Inherited Abroad?
You are required to pay CGT on any capital gain you make from the sale of an asset, which includes property, regardless of where it is located. The gain is usually the difference between what it cost you to acquire the property and what you received when you disposed of it.
Where Can I Seek Advice About Overseas Inheritance Tax as an Australian Citizen?
Legal and tax professionals who specialise in international estate and tax planning can provide advice about overseas inheritance.
They can help you understand your obligations overseas and in Australia, assist with estate planning, and guide you through managing and potentially selling inherited assets.
Need Help Understanding Your Overseas Inheritance Tax in Australia?
Navigating the world of overseas inheritance tax can be complex. But don’t worry; Walker Pender Group is here to help.
Our experienced legal professionals can guide you through your obligations and options, ensuring you make informed decisions.
Have you inherited overseas assets and are unsure of the tax implications? Contact Walker Pender Group today, and we’ll help you understand and manage your overseas inheritance tax obligations in Australia effectively.
