Receiving inheritance via a NZ-based trust

What are the tax implications of receiving an inheritance from a NZ trust, rather than directly.

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I was born in NZ, and moved to the UK in the 90s & have lived here since then. I guess I'm domiciled in the UK by now!

My mother was born in the UK, but went to NZ as a baby and has lived in NZ for around 75 years.
She has no tax relationship with the UK and had actually given up UK citizenship in the 1970s.

In 1998 she transferred her NZ property into an NZ "discretionary trust". The aim was to avoid govt care home charges in NZ (which in the end was not necessary.)
The settlor (my mother) and the trustees are all in NZ. Most of the beneficiaries are in NZ too, apart from me.

After my mother died, the property was sold by the trustees, who now have the discretion to distribute the proceeds to the children, including me.

If this property had not been in a trust there would be no tax due since it would have been a straightforward inheritance from an NZ individual's estate (and the UK would have deemed that any inheritance tax already paid, even though there is 0% inheritance tax in NZ.) But since it's in a trust, I think it's more complicated.

Does anyone know what my tax liability would be, if anything, and are there ways to reduce this?

Replies (2)

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By paul.benny
06th Dec 2021 14:42

When your mother transferred assets into a trust you were already in the UK. I would hope that her advisers took this into account.

Presumably the trustees are in NZ. They should be able to tell you - or at least ascertain - whether a distribution to you will attract NZ tax.

In the UK, liabilities generally fall on the estate/trust rather than the recipient. However, I would suggest that you get some paid-for advice from someone with expertise in the trusts and inheritance. Depending on the sums and your own circumstances, it may be worth wrapping this up with estate planning for yourself.

Be aware too that receipt of large sums from outside UK will trigger money laundering concern with your bank. You should discuss that with them before the funds are sent.

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Replying to paul.benny:
By Tax Dragon
06th Dec 2021 15:19

The main tax charges (that you don't mention… ToAA is also technically in point, but unlikely that tax would arise as a result) are likely to be under s87 and s91 TCGA. (There's also some anti-avoidance in Sch 4C - but I think it's most likely s87 is the main issue.)

There are now about 20 sections between 87 and 91. Not all will be relevant, but some may.

These are not easy topics for discussion (way beyond the scope of discussion in here, IMHO). It's unfortunate that, what may have been excellent planning in NZ may have disadvantageous tax consequences in the UK. However, the trust being discretionary may mean there is scope for reducing tax. There's no way of knowing from the OP what tax may (or may not) be at stake, or planning available.

+1 to your suggestion to take advice. Quite apart from the additional points you make, I'm intrigued by the possibility that an election under s225 might help. If that is confirmed by an advisor who knows what they are talking about on such matters - so not your typical high street accountant - then the advice potentially pays for itself. I say possibility: s225 might not help. I'm just thinking out loud. It's not something I remember coming across, or learning about, before. But in any event, if indeed there is tax here, planning can help to reduce it.

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