Inheritance tax for non-UK resident

kittykat

Hi - hoping someone can help...
My sister-in-law is resident in New Zealand - she was born in the UK but has not lived here since she was very young.
Her godmother died recently and had no family so has left her estate to her 2 goddaughters - one is UK resident and S is NZ resident.
She has email us asking if we know whether she has to pay interitance tax at UK rates on her share - I am not sure of the exact value she stands to inherit, but I think around 200k which is made of of a half share of a property and an investment (which is tax paid up to the date of death).....
Any experts out there got any idea how I start researching this for her?
Thanks!!

zygurat789

Your s-i-l does not have to pay inheritance tax until she dies (assuming NZ has a similar tax). Her godmother's estate (assuming the godmother was resident in the UK), however, will have to pay any Inheritance tax due and this will be dealt with by the executors; so your s-i-l will receive her share of the net estate.
I am not quite sure, though, what you mean by "an investment (which is tax paid up to the date of death"

kittykat

Hi-NZ residents don't pay inheritance tax on money inherited in NZ! The investment is part of the estate but someone has said to her she may be able to claim some tax back on this part of the inheritance (around 50k)

zygurat789

In this case the NZ resident is not paying any tax, it is being paid by the UK resident estate of the deceased. I do not know any NZ tax law but since the NZ resident is not actually paying any tax I would doubt that she would be able to claim any back and AFAIK that is also the basis of any doble taxation calculation, but then I don't know any NZ tax law. Do we have any NZ residents on this board?

Linton

Surely inheritance tax is paid by the estate of the departed not by the recipients. So the SiL doesnt have to pay any in any case. Any that was due should have been sorted out by the executors of the godmothers estate.

kittykat

yes - it is paid by the estate, but someone (not sure who) suggested there might be some tax relief on the money she takes back to NZ that has been taxed as UK income... but reading the above I think she has been ill-informed!
Thank you

Cook_County

UK IHT is charged on the worldwide estate of UK domiciliaries. Residence is irrelevant. We do not have sufficient data to advise on the domicile of the deceased. The executors may.

John_Pierpoint

This confusion might be something to do with the Income Tax.
If the deceased has managed to die part way through the tax year, the executors can usually claim back some tax as the deceased has qualified for a whole year of personal allowance.
During the period of administration the inheritance would have earned some return as interest, dividends, rent etc. The tax paid on this should be certified on form R185 when the monies are paid to the beneficiary in New Zealand.
The new source of income, presumably, needs to be reported to the New Zealand tax authorities - but I don't see how any of this UK Income Tax could be reclaimed by a New Zealand resident.

The other thought bothering the New Zealand resident might be the "ownership" of half a property in the UK.
Having a property available to you in the UK was a badge of domicile in the UK that exercised the accountant of my late aunt. The half a property in question was a rental "investment" that aunt had inherited.
In the event aunt, who had emigrated to South Africa, died and this half a property did not trigger an IHT tax bill from the UK (as far as I know).

kittykat

Thanks I will look into the property thing - I think early intentions are to sell it as it may be better if they can hold onto it for a while. The fodmother died a couple of months ago but the executors took their time informing the beneficiaries - hopefully something will be resolved when she comes over from NZ at the end of November (earliest opportunity she has to get here from work etc).

John_Pierpoint

At the moment the godmother's assets are owned by her executors, so no rush.
The UK tax man expects an (initial) account to be presented within 6 months and then probate can be granted. (I cannot remember the exact statistics from HMRC but within 2 years of death something like 96% of estates have been settled.)

It is quite normal for the period of administration to last a year and if there is property to be sold then two years can be not unusual in present conditions.

There are tax issues involved in the exact timing of the sale and/or the transfer to the beneficiaries of income and capital, competent executors and /or their advisers should understand these wrinkles: eg There is a holiday from Council tax of date of probate plus 6 months and the residents of some countries (such as S.Africa) didn't pay Capital Gains Tax (17 years ago).
http://en.wikipedia.org/wiki/Capital_gains_tax#New_Zealand
New Zealand has a capital gains tax on personal property and land that was acquired for the purposes of resale, with an exemption for residential dwellings lived in by the owner or their family. This tax is widely avoided and not usually enforced, perhaps due to the difficulty in proving intent at the time of purchase.

When you have resolved these issues, please pop back here and let us all know how you got on.

kittykat

Thank you - SIL arrives on 23 November (sadly a Friday so can't do much until Monday....
From her emails over the weekend I am starting to doubt the integrity of the executors - already jewellery has gone 'missing.
I will certainly pop back with the outcome.