Accounting and Tax

Overseas inheritances and New Zealand tax obligations

22 March 2019
3 min read

15 June 2017

Have you inherited overseas property, received an inheritance from a non-resident, or been appointed executor or trustee of the estate of an overseas person? If you have, you may have New Zealand tax liabilities and obligations of which you are unaware. You may also soon have Inland Revenue asking about those liabilities and obligations. Inland Revenue has recently flagged the issue of New Zealand residents receiving overseas inheritances as an area where it considers there is significant non-compliance.

New Zealand tax law treats the estate of a deceased person as a trust. When the deceased person was not resident in New Zealand at the time of death, the estate is classified as a foreign trust. This means a New Zealand resident receiving an inheritance from an overseas estate is treated as receiving a distribution from a foreign trust. These distributions may give rise to unexpected tax liabilities in New Zealand. This is especially the case where the inheritance includes assets (for example, the family home or shares in a company) or where a family member of the deceased person has acquired assets from the estate. When an asset is inherited, New Zealand can deem a capital gain to arise and may treat that gain as taxable income in the hands of the beneficiary. New Zealand tax law will also treat any capital gain resulting from an estate selling assets to a family member of the deceased person as taxable income of the beneficiary who receives the distribution of that gain. A tax liability may also arise where the executor or trustees of the estate have allowed income to accumulate in the estate before distributing it to beneficiaries at some later date.

In addition to unlooked for tax liabilities, if you have been appointed an executor or trustee of the estate of an overseas person, you may need to register the estate with Inland Revenue as a foreign trust and file annual returns for the estate with Inland Revenue. When the foreign trust /estate was in existence on or before 21 February 2017, there is a general requirement for this registration to occur before 30 June 2017. If a person becomes an executor or trustee of a foreign estate after 21 February 2017, generally the person has 30 days from the date of their appointment to complete registration with Inland Revenue. There are some extensions to these timeframes where all the executors or trustees are natural persons who are not professional trustees.

If you have received an overseas inheritance, stand to inherit from non-residents, are or may become an executor of a foreign estate, contact your Findex adviser to discuss what New Zealand tax liabilities and obligations may arise.