Inheritance Tax from Abroad?

[Mr_A]

Hi Guys,

I'm not sure if this is strictly IHT or more an income tax question.

My mother passed away in South Africa, so at some point I will receive a bequest from her estate. I am a UK resident citizen and pay all the usual UK taxes. Her estate will be subject to estate duty (20% of value over R3,5 million) in South Africa, but I am unclear what taxes I may need to pay here in the UK once I receive my bequest.

As there is an estate tax convention / DTC between the UK and South Africa, will I need to declare my bequest as additional income on my Tax return ? I did read that bequests from countries outside the UK will need to be taxed when they were brought into the UK as they were not subject to UK tax during the time they were created. I can't see any way to find out if this is just for countries that do not have DTC with the UK.

Could anyone provide me with an idea what the official position is, or where to look for clarification please.

Much appreciated.

[maths]

There are no UK taxes to pay on your inheritance.

[Mr_A]

Hi Maths,

Thank you very much for responding to my post. I wanted to be absolutely sure what Tax I needed to pay, if any.

When the attorney dealing with the Estate asks for a bank account to deposit the bequest into, I presume that I just give him my UK current account ? I've seen various posts on here talking about off-shore accounts, which I don't have, and don't really want to get involved with.

Thanks again for your advice.

[Ray Coman]

On the basis that your mother was not domiciled in the UK, she will only be liable to inheritance tax on her UK situated assets.

[Mr_A]

Hi Ray

Thanks for your confirmation, it did seem to me to be unfair if after IHT (Estate Duty) was paid on someones Estate in their country, that an heir in another country might still need to pay tax, I just wanted to be absolutely sure that I paid the relevant tax if any was due. I can rest easier now, so many thanks maths and Ray.

At the moment, the exchange rate Rands to the Pound is pretty favourable, I hope that it is still favourable when the Estate is finally settled.

Thanks again to all.

[maths]

The "offshore" account option is only useful for UK tax planning if you are non-UK domiciled.

Once you inherit any cash denominated in SA rand when you convert it to £ a UK capital gains tax liability may arise.

This occurs if between the date you take title to the asset and date of conversion the SA rand appreciates against the £.

[Mr_A]

Hi Maths

I'm UK domiciled so offshore not applicable.

Interesting point regarding CGT, I'm not sure what taking title to the asset means, would this be the date that the Estate is settled, or what 'asset' are we talking about ? What dates would I need to check the exchange rate for, so that I could work out any CGT owed, and what mechanism would I use to let HMRC know that I owed them CGT, and pay what was owed.

If the date taking title to the 'asset' was the settlement date of the Estate, presumably I would want the attorney to effect immediate transfer of funds if the Rand was appreciating against Sterling to minimise any CGT that I would need to pay ? If it was falling I shouldn't be that concerned ?

Again many thanks for your valuable advice, I want to do everything by the book so that I don't get stung at some point in the future due to the complications of Tax, and my relative ignorance.

[maths]

You would convert any monies inherited at the exchange rate at the date of death.

Then covert at rate when monies converted into £.

Difference is then gain or loss.

Don't forget that the first £10,100 of gains are CGT exempt.

[Mr_A]

Hi maths

Thanks for the info, now all I have to do is find a historical exchange rate site, note down the rate at time of death, wait until the Estate is would up, and note it down again. I'm guessing that I'd have to declare the CGT somewhere on my Tax form with relevant explanation.

Many thanks for the help, it really is appreciated.