Australian domiciliary and UK inheritance tax - USERNAME: bunnyden
Tax Question:
I have been coping with the administration of an intestate estate of someone whose domicile was in VIC Australia.
The estate is distributed approximately half in Australia and half in Scotland. A wife, an adult daughter and a 12 year old son are the beneficiaries. They are all residents of Scotland since 2003 and dual Australian/UK nationals, the wife being UK domiciled.
We have received LAA in Victoria and presently applying for confirmation in Scotland.
What is the tax position of the child?
He will inherit from his father's estate both in UK and Australia. Tax rates for minor's trusts in Australia are taxed at nearly 50%. Is there any way that the reciprocal tax agreement between UK and AUS can be utilised in UK to alleviate the tax burden?
Answer:
In terms of UK Inheritance tax, only the UK estate would be taken into account. Therefore you'd look at the value of the UK estate and the chargeable element would then be offset by the nil rate band.
There is no estate tax treaty between the UK and Australia. However, the UK does operate a system of unilateral relief so that relief can be obtained for any Australian IHT paid on the UK assets.
Therefore the UK assets left to the child would be within his chargeable estate but subject to the nil rate band. There would also be relief for any foreign tax suffered.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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