27 February 2025
Key takeaways
As a UK resident receiving inheritance from Australia, there are a few key things to consider:
- Australia doesn’t have an inheritance tax or any equivalent ‘death duty’ tax system. So, if you’re receiving an inheritance from Australia, you won’t need to pay any inheritance tax.1
- Australia has some specific ‘death benefits’ that are passed from the deceased to you as a beneficiary. We outline these benefits and how they would be paid to you as a UK-based beneficiary.
- Even though there is no inheritance tax, if you generate income from the assets that you’ve inherited, there could be income taxes that apply. This article takes a look at different forms of income tax, both in the UK and Australia, that might apply to your assets if you generate income or dividends from them.
While this article provides a high-level overview of inheriting assets from Australia, tax regulations are complex and subject to change. We recommend consulting a qualified tax professional for advice tailored to your circumstances and referring to official sources, such as the Australian Government’s Taxation Office’s website, for the latest information.
Inheritance tax in Australia: an overview
What is inheritance tax?
In many countries, when a person dies and passes on their assets, their beneficiaries must pay inheritance tax on the value of the estate, including all property, possessions and money.
Inheritance tax rules differ significantly between countries, which establish their own rates, thresholds, exemptions and liabilities. However, some governments choose not to impose an inheritance tax.
How will I know if I need to pay Australian or UK inheritance tax?
UK inheritance tax
UK inheritance tax applies to any of the deceased’s worldwide assets on the condition that they were UK-domiciled. Someone’s ‘domicile status’ refers to where their permanent home is for legal and tax purposes, meaning someone could be living in Australia and still be UK-domiciled.2
That’s why, if you’re receiving inheritance from abroad, it’s vital to check the deceased’s domicile status to determine which taxes will apply from each country.
Australian inheritance tax
Australia does not impose an inheritance or estate tax. The country’s federal estate tax was abolished in 1979, and by 1982, all six states had eliminated their equivalent ‘death duty’ tax systems. In 1985, Australia introduced Capital Gains Tax as a more practical and equitable way to generate public revenue.1
If you’re inheriting assets from Australia, there are no direct taxes on the inheritance itself. However, if you later sell the inherited assets for a profit or generate income from them (e.g. rental income or dividends), you may be subject to capital gains tax or income tax.
Once the assets are transferred to you, they are considered part of your own taxable holdings. Any income generated from them must be declared on your tax return and will be taxed at your applicable marginal rate.3
What taxes will you need to pay if you’re inherited assets generate income?
Although Australia doesn’t impose any sort of ‘death duty’ tax, once the assets are passed on to you, they are considered part of your taxable holdings. This means that if you generate any sort of income or profit from the assets, they will be subject to various capital gains and income taxes, both in Australia and the UK.
UK Capital Gains on worldwide assets
As a UK resident, you are typically required to pay Capital Gains Tax (CGT) on any profits (‘gains’) from the sale or disposal of assets, regardless of their location. This includes gains from selling overseas property or shares in a foreign company, which are still subject to UK Capital Gains Tax.4
Australian Capital Gains on inherited assets
If you inherit property based in Australia, you might be liable for Australian Capital Gains Tax on gains from ‘Taxable Australian Property’ (TAP), which includes:5
- Real estate situated in Australia
- Business assets of an Australian permanent establishment
- Interests in Australian entities where a significant portion of assets consist of the above
Double taxation reliefs
The UK and Australia have a ‘Double Taxation Convention’ to help prevent UK and Australian residents from being taxed twice on the same assets.
Foreign tax credit relief: The UK allows you to claim a foreign tax credit for Australian Capital Gains Tax paid on the same asset.6
Rental income: If you rent out a property you’ve inherited in Australia, the rental income will be subject to Australian tax.7 As a UK resident, you must also report this income to HM Revenue & Customs, but the Double Taxation Agreement allows you to claim a credit for Australian tax paid against your UK tax due on the same income, preventing double taxation.8
Dividends: ‘Dividends’ are payments you receive from certain investments, including company shares, stocks, mutual funds, and investment trusts. If you inherit certain Australian investments which generate dividends, for example, from a company based in Australia, you may have withholding tax deducted in Australia.9 But, you can claim a foreign tax credit relief for the tax withheld in Australia, up to the amount of UK tax due on the dividends.8
To benefit from these reliefs, you’ll need to report your Australian income and gains on your UK Self-Assessment tax return to claim the appropriate credits. It’s always important to maintain records of the taxes you’ve had to pay in Australia, as HMRC might need evidence.
Taxation of foreign income can be complex and is always subject to change. You can read more about this Convention on the GOV.UK website.10
Consult a tax professional familiar with both UK and Australian tax systems to ensure compliance and proper tax management.
What will be deducted from your Australia inheritance before it reaches you in the UK?
Even though there aren’t any direct inheritance taxes in Australia, there are some funds which will be taxed before they reach you as a beneficiary. These taxes will be taken from certain funds, but the amount that is taken will depend on your relationship with the deceased.
Superannuation death benefits
A superannuation fund, also known as “super”, is a long-term investment fund that exists in Australia that saves employee contributions and invests them for retirement. If the deceased person was a superannuation fund member, their accumulated balance is paid out as a death benefit to you as a dependent beneficiary or the estate.11
The amount that superannuation death benefits are taxed depends on your relationship to the deceased and how it’s being paid (lump sum or income stream).11
Dependents
Whether you would be classed as a death benefit dependent under Australian superannuation law depends on your relationship with the deceased. You would be classed as a death benefit dependant if you were:11
- A spouse of the deceased (legal or someone who was in a long-term relationship with the deceased at the time of death but was not legally married to them).
- Child of the deceased (regardless of age).
- Someone who was financially dependent on the deceased at the time of their death.
- Someone who was in an interdependency relationship with the deceased.
It’s important to note that under Australian superannuation law, eligibility for death benefits is determined by the nature of your relationship with the deceased at the time of their death. For example, if you were a former long-term partner of the deceased, you would not generally be considered a dependant under superannuation law.
There might be an exception to this rule if you were a former spouse of the deceased because, for tax purposes, a former spouse might be recognised as a death benefit dependant.12
If you were a friend of the deceased but not classed as a dependant, you are not eligible to directly receive superannuation benefits.13
Income stream payments
The first way that death benefits can be paid is through an income stream. These benefits are distributed as regular income payments rather than as a lump sum, providing the beneficiary with ongoing financial support.
If this payment option is chosen, the proportioning rule is used to calculate how much is tax-free and how much is taxable.
If you are a child of the deceased, payments of a death benefit income stream would stop on or before the date you turn 25 years old, and the remaining benefit must be paid as a tax-free lump sum – unless the child has a permanent disability.11
Lump sum payments
Taxation for lump sum death benefit payments depends on whether the recipient is classed as a dependent or non-dependent:
- Lump sum payments to dependents are tax-free.
- The proportioning rule is used to calculate the tax-free and taxable components for each benefit when a lump sum payment is made to a non-dependent.11
Lumon: Providing peace of mind for you and your loved ones
Receiving an overseas inheritance as a UK resident can feel overwhelming. At Lumon, we’re here to make transferring your funds as straightforward as possible so you can focus on what matters most.
Our service is designed around your needs, offering a tailored approach and competitive exchange rates. Your dedicated currency specialist will guide you through your options and provide market insights, helping you get great value from your transfer.
- E-wallet: Hold funds in the currency your inheritance is received in so you can execute your transfer when the market reaches a favourable level.
- Experienced personal account manager: Your dedicated currency specialist will help you plan a bespoke strategy that shields your inheritance transfers from currency risk.
- Forward contracts: Your strategy might include a forward contract. This lets you fix a current exchange rate for future transfers so you can safeguard the value of your inheritance, or the price of a foreign property sale as part of an inheritance, from currency risk.
FAQs about Australian inheritance tax
How much can you inherit tax-free in Australia?
Inheritance or estate taxes are not imposed in Australia, so as a beneficiary, you don’t need to be worried about paying any sort of tax when you are inheriting your assets. Any taxes that might be owed are taken from the estate before it reaches you.1
However, if the deceased was UK-domiciled, then all of their worldwide assets will be subject to UK inheritance tax. UK inheritance tax is levied at a standard rate of 40% on the portion of an estate exceeding the tax-free threshold, known as the nil-rate band, which is currently £325,000. Typically, UK inheritance tax is also taken from the estate before it is passed to the beneficiary.4
Why was inheritance tax abolished in Australia?
Inheritance taxes were abolished in the late 1970s due to competitive pressures among states and political decisions at the federal level. As a result, Australia currently does not impose inheritance or estate taxes. However, beneficiaries may have tax obligations related to the assets they inherit, such as capital gains tax upon disposal of the inherited assets or income tax on earnings generated from them.1
How are inheritance taxes in Australia compared to the UK?
Australia does not impose a specific inheritance or estate tax. As a beneficiary, any taxes or fees owed will be taken from the estate before it reaches you. However, once the assets have been passed to you, they’ll be classed as your taxable holdings. This means that if you then generate income from those inherited assets, you’ll need to pay taxes on them.2
The UK does have its own inheritance tax system, which is taken from the estate before it reaches you. UK inheritance tax is levied at a standard rate of 40% on the portion of an estate exceeding the tax-free threshold, known as the nil-rate band, which is currently £325,000.2
Is there a double tax treaty between the UK and Australia?
The UK and Australia have a Double Taxation Agreement (DTA) that came into effect in 2004. This aims to prevent individuals and businesses operating in both countries from being taxed twice on the same income or capital gains.10
For more details on the Convention and how it applies in different contexts, you can learn more here. While these countries may not have a specific inheritance tax, other mandatory levies, such as capital gains tax, may apply to the sale of inherited assets.
Lumon does not hold its own license or permission to service clients in Australia directly. Services for Australian customers are provided through our partnership with Currencycloud, an Electronic Money Institution authorised to operate in Australia. Currencycloud issues e-money for funds posted to your account and safeguards these funds in line with regulatory requirements. Safeguarded funds are held at reputable financial institutions and are protected in the event of Currencycloud’s or Lumon’s insolvency. Safeguarding starts as soon as Currencycloud has the funds and ends when funds are paid out to the designated beneficiary account.
This content is intended for residents of the UK and EEA only. Lumon does not hold its own license or permission to service clients in Australia. Services for customers in Australia are facilitated through our introducer arrangement with Currencycloud. For more details, please visit https://www.lumonpay.com/legal-info/.
Sources used:
1 Tax Law and Policy Research Group, University of Melbourne – What ever happened to Australia’s inheritance taxes?
2 GOV.UK – When someone living outside the UK dies, How inheritance works
3 Australian Government, Taxation Office – If you are a beneficiary of a deceased estate
4 GOV.UK – Tax when you sell overseas property
5 Australian Government, Taxation Office – Foreign residents disposing of taxable Australian property
6 PWC tax summaries – United Kingdom – Individual – Tax Reliefs and Tax treaties
7 Australian Government, Australian Tax Office – Foreign and temporary residents
8 GOV.UK – Relief for Foreign Tax Paid (FTCR)
9 PWC Tax summaries – Australian Corporate holding tax
10 GOV.UK – Australia – UK Double Tax Treaty
11 Australian Government, Taxation Office – Paying superannuation death benefits
12 Australian Tax Office – Super death benefits
13 Australian Tax Office – Superannuation death benefits
Sources last checked on date: 27/02/2024
The information provided in this material is accurate to the best of our knowledge at the time of writing 27/02/2024, but it is subject to change. The content is for informational purposes only and does not constitute tax advice. It is essential that individuals seek advice from professional services regarding tax matters. We do not accept liability for any errors or outdated information, and individuals should not rely on the information presented without consulting an expert.
