Home > Updates > Overseas Inheritances: What you need to know about tax and compliance
If I receive an inheritance from overseas, do I have to pay tax in New Zealand? Generally, the answer is “no,” since New Zealand doesn’t have Estate or Gifting Duties anymore (these were removed in 1992 and 2011). However, there are cases where things get a bit more complicated.
When someone dies, their assets are usually handled by an executor, depending on the country’s laws. Sometimes, New Zealand might treat the situation like a “trust” depending on how things are set up.
In some countries like the UK, Australia, and Canada, the system is similar to New Zealand’s trust laws. Other countries, like France and Germany, don’t have the same legal concept. Whether a trust is involved can affect the tax situation.
If you live in New Zealand and inherit money or property from a relative overseas, you likely won’t need to pay tax here. This is because most estates don’t involve a trust that includes the inherited money or property.
However, some Wills specifically say that a trust should be created. In other cases, a trust might be needed if, for example, the inheritance is being held for children until they reach a certain age.
In some countries, when someone dies, their assets go directly to the heirs without being handled by an executor. If this happens, any income earned from these assets after the person’s death could be taxable.
The heirs may not be aware of this income, or the resulting tax liability and compliance requirements for them caused by the income in the foreign jurisdiction (and in New Zealand) until much later, when the executors report and pass on the income. In these situations, while the inheritance itself might not be taxed, unexpected tax bills can pop up, along with possible penalties and interest on the foreign income.
New Zealand residents generally have to pay tax on income they receive from a trust, including foreign trusts. In a standard resident trust situation, distributions of capital gains and the original trust funds aren’t taxed when given to beneficiaries. Executors often have some flexibility in how they distribute the money. However, New Zealand has specific ‘ordering’ rules for foreign trusts, that may turn some of these payments into taxable income, depending on how the trust is structured.
This can create differences in how the payments are taxed in each country.
There is also a potential temporary exemption under the Transitional Resident rules for people who are new to New Zealand or have lived overseas for ten years. If they receive money from a foreign trust within their first 48 months in New Zealand, this income may not be taxed here. To qualify as exempt income, the distribution must be made within 48 months of arrival into New Zealand.
One thing people often forget is that importing items worth over $1,000 to New Zealand usually incurs Customs Duties. However, there is an exception for gifts, inherited items and Taonga if you show proof, like a Will, that they’re part of an inheritance.
If you have received an overseas inheritance or have questions around tax on foreign income, please contact a trusted Nexia Advisor for advice on whether there are New Zealand tax implications and compliance obligations.
Understanding overseas inheritances is crucial for navigating New Zealand tax on inheritance, especially when dealing with foreign trusts and ensuring proper inheritance tax compliance.
With member firms in over 120 countries the Nexia International network of independent accounting and consulting firms is also well placed to assist with overseas tax compliance requirements of inheritances.
Nexia is one of New Zealand’s best full-service accounting and business advisory consultancy firms offering the full range of accounting, business advisory, tax, audit, and insolvency services.
Nexia New Zealand has four offices throughout New Zealand: Victoria Street in the Christchurch CBD, Albany on Auckland’s Northshore, Newmarket in the Auckland CBD and Hastings in Hawke’s Bay.
We have specialist tax, accounting and business advisory teams across a number of industries including rural, agribusiness & agriculture, retail, franchising, medical, property & construction, and hospitality.
Read more about income tax on foreign trusts from the IRD here.
