Paying inheritance tax when retiring abroad
Inheritance tax regulations vary considerably in other countries. In most cases, you will be charged an inheritance tax above a specific threshold based upon your entire estate.
Transfers between husband and wife or civil partners are exempt from inheritance tax in France. And each child has an allowance of €100,000. The inheritance tax is paid over and above this amount and it depends on who is inheriting and how much is involved.
For example, for children, the rates range between 5% and 45%. Siblings are taxed at the rate of 35% for sums up to €24,430, and then at 45%, after an allowance of €15,932.
In Spain, the amount of inheritance tax paid depends on the number of beneficiaries and what relation they had with the deceased. The taxable sum is reduced by at least €15,956 for each descendant and €7,993 for other related beneficiaries.
Husbands, wives and partners have to pay inheritance tax, however 95% of the value of the family home is exempt, up to a certain limit, provided the husband/wife/partner, children or parents of the deceased inherit it and own it for a further 10 years. Inheritance tax is payable at between 7.65% and 34% varying greatly depending on the Spanish region.
Inheritance tax was abolished in Italy but in 2006 was brought back in. Rates are comparatively low, varying according to the relationship of the beneficiary to the deceased. The surviving husband/wife and any children have a nil rate band of €1m each. Above this amount, tax is 4%. The rate is 6% for brothers and sisters and other close relatives and each sibling is given a €100,000 allowance.
United States of America and Canada
In the US, expect to pay inheritance tax at rates ranging from 18% to 35%, but only on estates worth more than $5,250,000. Moving north to Canada, assets are treated as additional income or capital gains if left to anyone else other than a surviving husband/wife or partner who won't pay tax on any assets passed to them.
Australia and New Zealand
Australia and new Zealand don't charge inheritance tax.
What are the inheritance rules for retiring overseas?
The rules dictating who you can leave your estate to vary from country to country.
For example, in France you cannot leave your entire estate to your spouse, as your children will benefit from an undisputable claim.
While retiring in Spain will be far more expensive if you do not take specific actions to protect your estate.
Bear in mind, retiring abroad and paying taxes to another country will not mean HM Revenue and Customs (HMRC) has no claim. In fact, the UK government may be able to claim your estate if you are still considered a legal resident there.