Inheritance Tax in Australia: A UK Expat Guide

TL;DR: Australia does not have any inheritance tax, meaning you can typically inherit any amount of money, property, or assets tax-free from an Australian estate. However, UK expats inheriting from the UK may still pay UK Inheritance Tax on amounts over £325,000. You might also owe Australian Capital Gains Tax if you sell inherited property or income tax on assets that earn money.

Many people moving to a new country like Australia worry about unexpected taxes, especially when it comes to inheritances. It’s a common concern for UK citizens living in Australia, particularly if they have family there or plan to retire in the country. The good news is that Australia is one of the few places where you don’t have to pay a specific tax on inherited wealth. This makes navigating international inheritances much simpler in many ways. However, it’s crucial to understand other tax rules that might apply to inherited assets or funds. This guide will help you understand the tax system and handle an inheritance in Australia.

What is Inheritance Tax, and How Does it Work?

Inheritance tax, often called IHT in the UK, is a special tax paid to the government when someone dies. This tax applies to the money, property, and belongings that the deceased person leaves behind. This collection of assets is known as their ‘estate’. Many countries around the world have some form of inheritance tax. It might be known by different names, such as estate tax or succession tax, depending on the country.

However, not all countries collect this type of tax. For example, New Zealand, Singapore, Portugal, and Canada are among several nations that do not charge inheritance tax at all. Even in these countries, there might be other similar fees. In Portugal, for instance, a ‘stamp duty’ might be charged on the value of any inherited assets located within the country. Understanding these differences is key when dealing with international inheritances.

Does Australia Have Inheritance Tax?

No, Australia does not have a system for charging inheritance tax. This means that when a person dies, their beneficiaries do not pay a specific tax on the assets they receive from the estate. The Australian Tax Office (ATO), which is like the HM Revenue and Customs (HMRC) in the UK, also does not charge similar taxes.

This includes taxes that other countries might have, such as estate duties, gift duties, stamp duty on inheritances, or death duties. This makes Australia different from countries like the UK, where inheritance tax is usually owed on estates worth more than a certain amount.

Even though there is no inheritance tax in Australia, this doesn’t mean that receiving an inheritance is entirely tax-free. You might still need to pay other types of taxes. For example, if you sell an inherited property, you could be liable for Capital Gains Tax (CGT). Also, if you inherit investments that pay out regular income, like dividends, that income might be subject to income tax. We will look at these other possible taxes in more detail later.

Who Pays Taxes on an Inheritance in Australia?

In countries that have an inheritance tax system, the tax is typically paid in one of two ways. Sometimes, the deceased person’s entire estate pays the tax as one lump sum before any money or assets are given to the people inheriting them. This is how it works in the UK. In other countries, like France and Spain, each individual person inheriting money (called a beneficiary) has to pay inheritance tax if they receive more than a set tax-free amount.

However, things are very different in Australia. Since there is no inheritance tax Australia, neither the beneficiary nor the estate needs to pay this kind of tax or stamp duty. This is generally good news for those navigating international inheritances in Australia.

Still, if you are a UK expat living in Australia, it’s a good idea to check if any inheritance tax is due in another country. For example, you might inherit property that is located in the UK from a relative who was an Australian citizen. While no tax will be due in Australia, the UK might still charge some form of tax on the transfer of that property, because it is based in the UK.

Because tax laws can be complex, especially when you live in one country and have property or assets in others, it’s very important to get professional tax advice. This will help you understand which country’s tax rules apply to your specific situation. If you’re managing life across borders, it can be helpful to keep your original phone number – you can find out more about what happens to your number when you move abroad.

Are There Inheritance Tax Rates in Australia?

Since Australia does not have inheritance tax, there are no specific rates, allowances, or thresholds for this kind of tax. This means you don’t have to worry about how much you can inherit tax-free under an inheritance tax system. For example, if you are a UK citizen living in Australia, you can still keep your UK number abroad if you need to manage affairs back home.

However, there are some situations where you might still owe other types of tax. One common situation is if you sell real estate property in Australia that you inherited. In this case, you might need to pay Capital Gains Tax (CGT).

Capital Gains Tax is a tax on any profit you make from selling an asset. This profit is the difference between what the asset was worth when you inherited it and what you sell it for. In Australia, capital gains are usually taxed at the same rates as your regular taxable income. This means the amount of tax you pay can change depending on how much profit or income you have in total.

Calculating CGT can be a bit tricky, as there are various rules, discounts, and exemptions to understand. Here are some important points to remember about CGT on inherited property:

CGT Rule Category	Details
Exempt Properties	Some properties are completely free from CGT. This includes a property you use as your main home after you inherit it. Also, if the person who died owned the property and passed away before 20th September 1985, the property is exempt from CGT.
2-Year Exemption	If you sell certain inherited assets within 2 years of the person’s death, they might be exempt from CGT.
50% Discount	If you are an Australian resident and you own the asset for at least 12 months before selling it, you might be able to get a 50% CGT discount on any capital gain. This means you only pay tax on half of the profit.
Foreign Resident Rules	The rules for foreign residents who inherit Australian property are different. You can find more specific information on the Australian Taxation Office (ATO) website.

In addition to Capital Gains Tax, you may also have to pay income tax if you inherit an asset that regularly brings in money. This could include rental income from an inherited property or dividends from shares or other investments. The income generated from these assets would typically be added to your assessable income and taxed at your marginal tax rate. For UK expats living in Australia, understanding these rules is a critical part of managing their finances.

What Assets are Taxed (or Exempt) When Inheriting in Australia?

Because Australia does not have any inheritance tax laws, this generally means that all assets within an inherited estate in Australia are free from this specific tax. This covers money, property, investments, and personal belongings located in Australia. This simplicity is a significant advantage when navigating international inheritances in the country.

However, it’s very important to remember that this usually only applies to assets held within Australia. If you inherit assets from another country, you might still be liable for inheritance tax under that country’s rules. For example, if you inherit property in Italy, you might face different inheritance tax rules there. You can learn more about this in a guide to Italy’s inheritance tax.

To avoid any unexpected tax bills or problems, it is always a good idea to seek professional tax advice. An expert can help you understand the specific tax rules that apply to your unique situation, especially if your inheritance involves assets in multiple countries. Many expats find it useful to get detailed guidance on different aspects of life in Australia or prepare a moving abroad checklist for all financial and legal considerations.

Common Questions About Inheriting Money in Australia

Here are answers to some of the most frequently asked questions about inheritance tax in Australia:

How Much Money Can You Inherit Tax-Free in Australia?

There is no inheritance tax in Australia. This means there is generally no upper limit on the amount you can inherit tax-free from an Australian estate, specifically regarding inheritance tax itself. This applies to all kinds of inherited assets, including money, real estate, investments, and other property.

However, as mentioned earlier, you may still need to pay other types of tax related to your inheritance in Australia. These can include income tax on earnings from inherited assets or Capital Gains Tax (CGT) if you sell inherited property for a profit. Always consider these other potential taxes.

Is a UK Inheritance Taxed if You Live in Australia?

Australia does not charge any inheritance tax on assets you inherit from abroad, including from the UK. So, if you are an Australian resident or a UK expat living in Australia, you won’t pay Australian inheritance tax on funds or assets you receive from a UK estate.

However, you may still be subject to inheritance tax in the UK. The threshold for paying UK inheritance tax is currently set at £325,000. This means that if the total value of the deceased person’s estate (including the assets you inherit) is above this amount, there might be UK inheritance tax to pay. It’s important to understand the UK rules, as this tax would be paid by the estate before you receive your share.

Does the UK and Australia Have a Double Taxation Agreement?

Yes, the UK and Australia have a double taxation agreement in place. This kind of agreement is designed to stop individuals from paying tax on the same income or gains twice – once in the UK and again in Australia. This is a vital tool for those navigating international inheritances and other cross-border financial activities.

Because Australia does not have its own inheritance tax, this specific agreement does not directly apply to inheritance tax itself. However, it can be very important for other types of taxes. For example, the double taxation agreement might apply to income tax (such as on rental income from an inherited property) or Capital Gains Tax. These agreements ensure you are not taxed unfairly by both countries on the same item.

Tax matters can often be complicated, especially when dealing with different countries’ rules. It’s always best to get expert tax advice to fully understand your obligations and to find the best way to manage your money between countries. This will help ensure you comply with all relevant tax laws and avoid any unexpected issues.

Which Other Countries Have No Inheritance Tax?

Many countries around the world do not have an inheritance tax system. While they may not have this specific tax, some might use other systems, like stamp duty or transfer tax, instead. This can still add to the overall cost of inheriting assets, so it’s always good to check the specific rules for each country.

Here are just some of the countries that do not have inheritance tax, besides Australia ¹:

• India
• Singapore
• Mexico
• Estonia
• Malta
• Sweden
• Austria
• Norway
• Canada
• Slovakia
• Liechtenstein
• UAE (United Arab Emirates)
• Hong Kong
• New Zealand
• Saudi Arabia

Understanding the tax landscape for inheritances in different parts of the world can be complex. Always check the specific laws of the country where the assets are located, as well as the laws of your own country of residence.

Related reading

• Keep your Australian number abroad

Footnotes

1. List provided by Lorenz Partners ↩