Inheritance Tax
 New Zealand does not have a system of inheritance tax or death duties in place, but you are right to be concerned about your continued liability to UK Inheritance Tax when you move to New Zealand. Though not a pleasant subject in any respect (death and taxes…), we urge you to read on – it’s not as bad as you may think!
Your liability to UK inheritance tax (IHT) on your worldwide assets centres around a concept called domicile. There are different types of domicile (domicile of origin, domicile of dependency, domicile of choice, and deemed domicile). The one that applies for UK inheritance tax in this case is deemed domicile.
To be deemed domicile in the UK (and therefore liable to inheritance tax on your worldwide assets) you need to have been:
- domiciled in the United Kingdom within the three years immediately preceding the relevant time, or
- resident in the United Kingdom in not less than seventeen of the twenty years of assessment ending with the year of assessment in which the relevant time falls.
Basically, this means that once you have been living in New Zealand
for three years, or more specifically three tax years, you are less
likely to be liable to UK inheritance tax on your assets held outside
the UK.
However, caution is required because if you return to the
UK on a regular basis, continue to own property there, have sporting or
social club memberships there etc. the HMRC may still claim that you
are deemed domicile in the UK and liable for IHT. It is a good idea to
take specialist advice on your continued liability to UK inheritance
tax if you have emigrated to New Zealand but still have ties to the UK.
For more information on domicile and your liability to inheritance tax, have a look at this page on foreign aspects of IHT on the HMRC website.
So how about any assets you have retained in the UK?
Assets held in a standard UK pension scheme are therefore generally exempt from UK inheritance tax, as are UK assets and investments held in a New Zealand QROPS-approved pension scheme. Other assets you hold in the UK will generally still be subject to UK inheritance tax.
If you are leaving assets in the UK in the long term worth in excess of the current nil rate band for IHT, it may be worth investigating ways of reducing your liability. These include setting up a New Zealand trust or other "offshore" trust and settling some of your UK assets into it.
If you are contemplating this, please note that it can be worth setting
up your New Zealand trust before you are committed to moving to New
Zealand – which may sound strange, but there are issues of New Zealand
tax domicile involved. Great
care must however be taken when setting up an offshore trust from the
UK to ensure that you do not trigger any UK tax charges -
particularly if the amount you are placing in the trust exceeds the
nil-rate band for UK Inheritance Tax. There are other types of asset
holding vehicle which may also be helpful such as a New Zealand
Limited Partnership which may not trigger the UK tax charges
applicable to trusts. We strongly suggest that you take advice from
experts who are familiar with both UK and New Zealand trusts and tax
if you intend to set up a pre-migration trust, as offshore trusts are
a specialised area of both tax and trust law.
This article was compiled with
assistance from UK-NZ tax expert Martin Riley from Sterling Tax
Services
and offshore trust specialist Henry Brandts-Giesen from Helmores
Barristers and Solicitors.
They're great people to talk to if you are thinking of using a trust
for UK and/or NZ tax planning.
Don't hesitate to contact us if you have any questions about your tax position as a UK migrant to New Zealand or a Kiwi returning from the UK.
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