Receiving your inheritance money from another country can be a complicated task. This article gives you an insight on the types of taxes involved, the laws and the best way to receive your inheritance money from abroad.
Tax on Inheritances from Overseas
Executors of wills or estates have the responsibility for the deceased person’s tax affairs. There is an inheritance tax in the UK and other financial transactions surrounding a person’s death may also be taxed.
The tax you are responsible for is outlined very clearly on the HMRC website. If you can’t find what you are looking for then they are also contactable by phone.
Estates can continue to gather income after a person has died. This can be from unpaid wages, interest on savings, share dividends and capital gains on any assets. Until the administration of the estate is fully organised, tax is payable on any income which is deemed as taxable. This must be dealt with by the executor of the will or those named within it.
For any specific questions direct them to an accountant or directly to HMRC.
Capital Gains Tax
Even if the assets from the deceased person’s estate are being transferred, capital gains tax (CGT) still applies. The most common assets that are transferred are property, shares and fund investments.
There are some exemptions from CGT including ISAs or PEPs, UK government gilts and Premium Bonds. Also betting, lottery or pools winnings. CGT also does not apply if the amount is under the deceased yearly tax free allowance of £11,100.
Inheritance tax in the UK is charged at 40% of the estate’s worth if the estate is worth over £325,000. For example if the estate is worth £500,000 then the inheritance tax is 40% of £175,000 (£500,000 minus £325,000). If the deceased had a partner who died before them, then their threshold gets added on. This means that widows and widowers can have a potential inheritance tax threshold of £650,000.
The executor of the will is in charge of ensuring that all laws are adhered to and all taxes are allocated. If you are the executor of a will you are responsible for:
- Notifying the beneficiaries.
- Valuing the estate and looking after it.
- Obtaining authority to administer the estate.
- Ensuring tax returns are completed and lodged.
- Taking care of any outstanding debts.
- Overseeing the dividing up of the estate and all assets associated with it.
Sending money back to the UK
If you have inherited money outside of the UK then you have a few options to bring it back.
- Get the executor of the will to issue you a bank cheque in the currency of the foreign country.
- Ask the executor to send the money to your UK bank via a bank transfer.
- Use a money transfer company. Ask the executor to send the funds to the company’s account. The company then converts it into sterling and sends the money to your bank account.
What is the best thing to do?
- It depends on the situation, but taking a cheque in a foreign currency is never really a recommendation. It can be costly and takes a long time to convert.
- Getting funds sent transferred directly into your bank account is easy but can also be very costly.
- Using a money transfer company involves a little bit of work setting up the account initially, but can save you a lot of money by giving you a far better rate of exchange.
Trisha had an old aunt in Jamaica who has recently passed away. She travels to Kingston for the funeral where the executor of the will approached her and informs her that she has been left some money from the estate. The executor offers to write her a cheque in the amount of Jamaican dollars that she has been left. Trisha refuses.
Instead she sets up an account with a money transfer company online. She asks the executor to transfer the inheritance amount into this account. The company then converts it to sterling and transfers it into her UK bank account.